2016 | ANNUAL REPORT
16 MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT
DELIVERING SIGNIFICANT RETURNS
FOR OUR SHAREHOLDERS
Since becoming an independent company July 1, 2011, to year-end 2016
MPC Has Returned More Than
$10
BILLION
To Shareholders
CONTENTS
1
3
6
9
12
15
16
17
CHAIRMAN, PRESIDENT AND CEO LETTER
REFINING AND MARKETING
SPEEDWAY
MIDSTREAM
GROWTH AND ENHANCING SHAREHOLDER VALUE
FINANCIAL AND OPERATIONAL HIGHLIGHTS
BOARD OF DIRECTORS
CORPORATE OFFICERS
On cover: MPC’s refinery in Canton, Ohio
On this page: MPC’s refinery in
Catlettsburg, Kentucky
16 MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT
$13.1 28%
BILLION COMPOUND
ANNUAL
GROWTH RATE
IN BASE DIVIDEND
SINCE SPINOFF
CUMULATIVE NET INCOME
ATTRIBUTABLE TO MPC
SINCE SPINOFF
From the Chairman, President and CEO
Fellow shareholders,
Marathon Petroleum Corporation delivered strong operational
and financial performance for our shareholders in 2016, a
year that marked our fifth year as a stand-alone company
and our first year incorporating the MarkWest business in our
operations. We also announced plans for strategic actions to
enhance shareholder value in 2017.
Our earnings in 2016 were $1.17 billion, or $2.21 per diluted
share, a solid result despite a challenging commodity price
and margin environment.
In the first full year following the strategic combination of
our midstream master limited partnership, MPLX LP, with
MarkWest, we are encouraged by the robust portfolio of
growth opportunities that will continue to contribute to long-
term value for our investors.
Speedway continues to excel, turning in another exceptional
year, setting multiple records while maintaining tight control
on expenses. We expect to continue driving marketing-
enhancement opportunities across the network as we build
new stores, remodel stores and rebuild existing locations in
the retail segment’s core markets.
Throughout our Refining and Marketing system, we continue
to execute projects that focus on technical excellence and
improving our performance, including the implementation
of high-return staged investments in the South Texas Asset
Repositioning (STAR) program through 2021. The program is
designed to enhance profitability and reliability while creating
the second-largest refining complex in the United States
through the integration of our Galveston Bay and Texas City
refineries.
Additionally, we have announced strategic actions to
enhance our shareholders’ value. MPC is significantly
accelerating plans to dropdown to MPLX assets with
approximately $1.4 billion of annual earnings before interest,
taxes, depreciation and amortization (EBITDA) expected in
2017, including $250 million in the first quarter.
In conjunction with the completion of the dropdowns, we
intend to exchange MPC’s economic interests in the MPLX
general partner, including incentive distribution rights, for
newly issued MPLX common (LP) units. These transactions
are subject to requisite approvals, market and other
conditions, including tax and other regulatory clearances.
Additionally, a special committee of the Board has been
formed and has selected an independent financial advisor to
(Continued on Page 2)
MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT1 MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT
TOTAL SHAREHOLDER RETURN
SINCE SPINOFF
Since becoming an independent company July 1, 2011, to year-end 2016
179%
159%
113%
91%
MPC
Peer
Group(1)
Refining
Peers(2)
S&P
500
(1) Peer Group represents average TSR of BP, Chevron,
ExxonMobil, HollyFrontier, Phillips 66, Royal Dutch Shell,
Tesoro and Valero
(2) Refining Peers represents average TSR of HollyFrontier,
PBF Energy, Phillips 66, Tesoro and Valero
assist in the full and thorough review of Speedway to ensure
optimum value is delivered to shareholders over the long
term. We expect to provide an update on the review by
mid-2017.
Cash proceeds from the dropdowns and ongoing
LP distributions are expected to fund the substantial
ongoing return of capital to MPC shareholders in a
manner consistent with maintaining an investment-grade
credit profile.
Our experienced board and knowledgeable leadership team
are executing this strategic plan to unlock the tremendous
value in our best-in-class midstream platform for the benefit
of all investors.
MPC has a track record of success and continues to
deliver strong returns for our investors. With strengthening
commodity prices, recovering refinery spreads and our
aggressive plans to enhance investor value, we remain
well-positioned across the business to create and deliver
long-term value for our shareholders. We thank you
for investing in MPC, for sharing in our vision, and for
contributing to our success.
Sincerely,
Gary R. Heminger
Chairman, President and Chief Executive Officer
A MarkWest Energy Partners, L.P.
facility in Houston, Pennsylvania
22 MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT
REFINING AND MARKETING
We remain focused on enhancing
margins at our refineries, and in 2016
we made significant progress capitalizing
on strategic opportunities with our
combination of well-positioned Midwest
refineries and large Gulf Coast refineries
to further our competitive advantages,
including expanding optimization potential
and increasing export access.
75%of the Environmental
Protection Agency’s
ENERGY STAR
recognitions awarded
to refineries.
That’s
despite
owning and
operating
just10%
of total U.S.
refining capacity.
Top: MPC’s Robinson, Illinois, refinery
Employees at MPC’s refinery in
Catlettsburg, Kentucky
MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT3 INCREASING EXPORT CAPACITY
Thousand Barrels Per Day
510*
365
345
320
395
150
Export dock at MPC’s Garyville, Louisiana, refinery
2012
2013
2014
2015
2016
2019
*Estimated
We executed on our refinery turnaround activity
in 2016, completing significant projects at our
Robinson, Illinois; Garyville, Louisiana; and
Galveston Bay, Texas, refineries. Our Garyville
refinery successfully completed its largest
turnaround in history, allowing us to increase
production of high-value products such as
alkylate and light products.
In Robinson, we completed a project to increase
light crude processing and overall crude capacity,
improving the refinery’s flexibility to optimize its
crude slate and product yields in a variety of
market conditions.
We completed an expansion of our export
capacity at Galveston Bay, increasing the
refinery’s export capacity by 30,000 barrels
per day, increasing our total export capacity
from Galveston Bay and Garyville to nearly
400,000 barrels per day, and further expanding
our product placement flexibility and optionality.
We also completed the first phase of our
multi-year STAR program at the Galveston Bay
refinery in Texas City, improving profitability of
the refinery by increasing the conversion of
residual oil to lighter products by 20,000 barrels
per day.
Looking ahead, we plan to continue margin-
enhancing investments such as the Garyville
distillate projects, Galveston Bay export
capacity expansion and continuation of the
STAR program.
MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT4 MPC’s Catlettsburg, Kentucky, refinery
TOTAL REFINERY
THROUGHPUTS
Million Barrels Per Day
1.81
1.89
1.85
MECHANICAL
AVAILABILITY*
Percentage of Combined
Unit Capacity
93.5
95.5
94.9
2014
2015
2016
2014
2015
2016
* Rated capacity of all MPC operations, less lost capacity due to planned and
unplanned outages, divided by rated capacity
Employees at MPC’s Galveston
Bay refinery in Texas City, Texas
MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORTMARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT5 MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT
SPEEDWAY
In 2016, Speedway, the second-largest
chain of company-owned and operated
retail gasoline and convenience stores in
the United States, continued to exceed our
expectations, delivering record contributions
to the company’s financial results by driving
marketing-enhancement opportunities and
continuing to realize acquisition synergies
across the network. Speedway set segment
records in income from operations, light
product gallons sold, merchandise sales,
and merchandise gross margin on a
percentage and absolute dollar basis.
During 2016, we completed the final
store conversions of the 1,230 locations
Speedway acquired in 2014. We improved
merchandise gross margins across the
network making significant progress
toward our goal of generating two-thirds
of gross margins from merchandise sales
and one-third from fuel sales. With the
conversions completed ahead of schedule
and under budget, we are realizing greater
synergies than expected and realizing
them at a faster pace. Speedway achieved
approximately $150 million in synergies in
2015 and approximately $180 million in
synergies in 2016. We anticipate synergies
of approximately $225 million in 2017
as we continue to focus on marketing-
enhancement opportunities.
2,733
convenience stores in
21
states
5.7 MILLION
ACTIVE MEMBERS OF THE
SPEEDY REWARDS® PROGRAM IN 2016*
*12-month rolling average
6
MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT
MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT
Speedway continues to build new stores
while rebuilding and remodeling existing
stores in core markets. We opened 18 new
stores and six rebuilds in 2016 and completed
nearly 350 remodel projects, with more of
these high-return investments planned for
2017. The accelerated pace of remodels
continues to provide a strong foundation
for sales growth and margin enhancements
across the entire Speedway business.
Additionally, in November, Speedway
entered into a joint venture with Pilot Flying J
consisting of 123 travel plazas, primarily in
the Southeast United States. Speedway
contributed 41 locations and Pilot Flying J
(Continued on Page 8)
SPEEDWAY
MERCHANDISE SALES
$ Billion
SPEEDWAY MERCHANDISE
GROSS MARGIN
$ Million
1,435
1,368*
4.88*
5.01
3.61*
975*
2014
2015
2016
2014
2015
2016
*Includes impact of acquisition, closed Sept. 30, 2014
An MPC fuel transport truck
at a Speedway store in
Columbia, Tennessee
Top: Inside a Speedway store in
Springfield, Ohio
Above: A Speedway store in Findlay, Ohio
7 MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT
contributed 82 locations to the
new entity, PFJ Southeast LLC
as of Dec. 31, 2016. Pilot
Flying J is the operator of the
venture with locations branded either
Pilot or Flying J. This joint venture
creates a strategic partnership for future
growth with one of the premier travel
plaza operators in the United States.
Speedway finished the year with
2,733 convenience stores in 21 states.
Speedway’s Speedy Rewards loyalty
program grew by approximately
1 million members in 2016, to average
5.7 million active members. We believe
Speedy Rewards is among the key
reasons customers choose Speedway
over competitors, and it continues to drive
significant value for both Speedway and
our Speedy Rewards members.
$180
Million
SYNERGIES ACHIEVED
IN 2016 BY
ACQUIRED STORES
A Speedway store in Enon, Ohio
8 MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT
MIDSTREAM
Upon completing a full year of operations
following the strategic combination of
our master limited partnership, MPLX,
with MarkWest, our Midstream segment’s
value as a long-term value driver remains
a top priority.
The addition of MarkWest assets to MPLX
transformed the profile of our partnership to
one of the largest natural gas processors in
the United States and the largest processor
and fractionator in the prolific Marcellus and
Utica shales in the Northeast United States.
Over the course of 2016, the partnership
reported year-over-year increases of
11 percent in gathering, 13 percent in
natural gas processing and 25 percent in
natural gas liquids fractionation volumes.
The partnership continues to execute and
pursue exceptional growth opportunities,
supporting a diverse set of producer
customers in some of the nation’s most
prolific shale plays.
(Continued on Page 10)
MPC IS EXECUTING PLANS TO
DROPDOWN* TO MPLX ASSETS WITH
ANNUAL EBITDA OF APPROXIMATELY
$1.4
Billion
*expected in 2017, pending requisite
approvals and regulatory clearances
Insert top: MarkWest’s Cadiz, Ohio, complex
Insert bottom: MarkWest’s Bluestone processing plant in Evans
City, Pennsylvania
MarkWest’s Hidalgo complex in Orla, Texas
MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT9 MPLX expanded its presence in the
Southwest with the completion of its
Hidalgo gas processing complex in
the Delaware Basin of Texas, and will
evaluate further investments in Gathering
and Processing to support the substantial
activity our producer customers are
pursuing in the region.
MPLX also expanded its logistics and
storage network with the commencement
of the Cornerstone Pipeline, designed
to transport condensate and natural
gasoline from the Marcellus and Utica
regions to MPC’s Canton, Ohio, refinery.
The partnership is expanding the capacity
of existing pipelines and constructing
new pipelines as part of a larger build-
out of Utica Shale infrastructure, seizing
a unique opportunity to connect natural
Top: Right of way for MPLX’s Cornerstone Pipeline in Eastern Ohio
MPC employees at a Cornerstone Pipeline station
MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT10 gas liquids to downstream markets in the
Midwest and Canada through our extensive
distribution network.
Additionally, in March, MPC contributed
its inland marine business to MPLX in
exchange for additional MPLX equity,
continuing the diversification of earnings
streams and adding further fee-based
revenues to the partnership.
MPC is now executing strategic actions
to enhance shareholder value, including
the planned dropdown to MPLX of assets
generating approximately $1.4 billion of
EBITDA, expected in 2017, subject to
requisite approvals, market and other
conditions, including tax and other
regulatory clearances.
Top: A marine tow along the Ohio River near Cincinnati, Ohio
MPC’s refinery in Catlettsburg, Kentucky
MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORTMARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT11 GROWTH AND ENHANCING SHAREHOLDER VALUE
Since our formation in 2011, we have
generated more than $13 billion in
net income and increased our base
dividend at a 28 percent compound
annual growth rate through 2016. We
have returned more than $10 billion to
shareholders.
While we at MPC continue to
work with a near-term intensity to
execute strategic actions we expect
to enhance shareholder value, we
remain committed in the long term
to operational excellence, generating
compelling capital returns and
delivering enduring value for our
shareholders.
As a company, MPC drew upon its
strengths in 2016 in order to deliver
solid results despite a challenging year
from a commodity price and margin
perspective. Among the year’s notable
performances were record financial
results from our Speedway and
Midstream segments.
Looking forward, we are enthusiastic
about our plans to enhance
shareholder value and remain
encouraged by the opportunities
ahead. We are energized by the
growth opportunities at MPLX and
our Midstream segment, which will
continue to be a source of long-term
value for our investors. MPC plans to
exchange our economic interests in
the general partner, including incentive
distribution rights, for LP units, in
conjunction with the completion of the
accelerated dropdowns. We believe
this will provide a clear marker on the
substantial value of MPC’s midstream
interests and optimize the cost of
capital for MPLX over the long term.
The proceeds from the dropdowns,
along with the LP distributions MPC
will receive following the exchange,
are expected to fund substantial
ongoing returns of capital to MPC
shareholders. As always, we intend
to do this in a manner consistent
with maintaining an investment-grade
credit profile at both MPC and MPLX.
Additionally, a special committee of
the Board has been formed and, with
the assistance of an independent
financial advisor, will perform a full
and thorough review of Speedway, to
ensure optimum value is delivered to
shareholders over the long term. We
expect to provide an update on this
review to shareholders by mid-2017.
Our capital investment plans for both
MPC and MPLX remain focused on
strengthening the sustained earnings
power of our business through growth
and margin-enhancing projects, as
well as expanding our more stable
cash-flow businesses.
MarkWest’s Hidalgo complex in Orla, Texas
MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT12 MPC LOGISTICS
63
Owned and
part-owned
light product
terminals
121
Third-party
light product
terminals
18
Owned
asphalt
terminals
2
Third-party
asphalt
terminals
owns, leases or has ownership interest in
8,400 Approximate miles of pipeline that MPC
18 Leased
18 Inland
163 Owned transport trucks 2,074Owned or leased railcars
towboats 204 Owned
waterway
barges
barges
As of Dec. 31, 2016
CRUDE OIL
REFINING CAPACITY
BPCD
NCI*
Galveston Bay 459,000
Garyville
Detroit
Robinson
543,000
132,000
231,000
Catlettsburg
273,000
Canton
Texas City
93,000
86,000
13.0
11.2
9.9
9.8
9.3
7.8
7.8
TOTAL
1,817,000
10.7**
* Nelson Complexity Index (NCI) calculated
per Oil & Gas Journal NCI formula
**Weighted Average NCI
BPCD: barrels per calendar day
Source: MPC Data
Marketing Area
MPC Refineries
Light Product Terminals
MPC Owned and Part-owned
Third Party
Asphalt/Heavy Oil Terminals
MPC Owned
Third Party
Water Supplied Terminals
Coastal
Inland
Pipelines
MPC Owned & Operated
MPC Interest: Operated by MPC
MPC Interest: Operated by Others
Pipelines Used by MPC
Ethanol Facility
Biodiesel Facility
®
Tank Farms
Pipelines
Butane Cavern
Barge Dock
MarkWest
Complex
Marine Repair
Facility
MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORTMARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT13
MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT
MARATHON BRAND AND SPEEDWAY LOCATIONS
Extensive Retail Network
47
64
48
303
761
115
292
309
640
488
859
147
583
38
404
79
227
1
281
2
12
114
1
20
238
72
4
Marathon
Brand
Speedway
113
66
1
62
121
278
220
61
117
52
101
As of Dec. 31, 2016
241
606
MARATHON BRAND
owned and operated by
independent
entrepreneurs
~5,500 branded locations
19 states
located in
2016 gasoline and distillate sales of
4.8 billion gallons
SPEEDWAY
2,733 stores
located in
21 states
2016 gasoline and distillate sales of
6.1 billion gallons
MARATHON BRAND
GASOLINE AND
DISTILLATE SALES
Billion Gallons
4.98
5.02
4.75
2014
2015
2016
SPEEDWAY
GASOLINE AND
DISTILLATE SALES
Billion Gallons
6.04*
6.09
3.94*
2015
2014
2016
* Includes impact of Hess
acquisition, closed Sept. 30, 2014
14
MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT
FINANCIAL AND OPERATIONAL HIGHLIGHTS
mm = millions
mbpd = thousand barrels per day
Revenues ($mm)
Income from operations ($mm)
Net income attributable to MPC ($mm)
Per-common-share data(a)
Net income attributable to MPC – basic ($)
Net income attributable to MPC – diluted ($)
Dividends ($)
Weighted average shares outstanding – basic(b) (mm)
Weighted average shares outstanding – diluted(b) (mm)
Cash and cash equivalents ($mm)
Total debt(c) ($mm)
Equity ($mm)
Capital expenditures and investments(d) ($mm)
Refinery throughput (crude oil – mbpd)
Refinery throughput (other charge and blendstocks – mbpd)
Total refinery throughput (mbpd)
Refined product yields (mbpd)
Gasoline
Distillates
Propane
Feedstocks and special products
Heavy fuel oil
Asphalt
Total refined product yields
R&M refined product sales volume(e) (mbpd)
R&M gross margin(f) ($/barrel)
Number of outlets (Marathon brand)
Number of convenience stores at year-end (Speedway)
Speedway gasoline and distillate sales (mm gallons)
2016
2015
2014
63,339
2,378
1,174
2.22
2.21
1.36
528
530
887
10,572
20,203
3,069
1,699
151
1,850
900
617
35
241
32
58
1,883
2,259
11.26
5,455
2,733
6,094
72,051
4,692
2,852
5.29
5.26
1.14
538
542
1,127
11,925
19,675
16,283
1,711
177
1,888
913
603
36
281
31
55
1,919
2,289
15.25
5,607
2,766
6,038
97,817
4,051
2,524
4.42
4.39
0.92
570
574
1,494
6,602
11,390
4,738
1,622
184
1,806
869
580
35
276
25
54
1,839
2,125
15.05
5,455
2,746
3,942
Speedway gasoline and distillate gross margin(g) ($/gallon)
0.1656
0.1823
0.1775
Speedway merchandise sales ($mm)
Speedway merchandise gross margin ($mm)
Crude oil and refined product pipeline throughput (mbpd)
Gathering system throughput (mm cubic feet/day)(h)
Natural gas processed (mm cubic feet/day)(h)
C2+ NGLs fractionated (mbpd)(h)
Number of employees
3,611
975
2,119
5,007
1,435
2,311
3,275
5,761
335
4,879
1,368
2,191
3,075
5,468
307
44,460
45,440
45,340
(a) Share data has been restated to reflect the stock split effected in 2015. (b) The number of weighted average shares for 2016, 2015 and 2014 reflect the impact of
shares received under our share repurchase program. (c) Includes long-term debt due within one year. We adopted the updated FASB debt issuance cost standard as
of June 30, 2015, and applied the changes retrospectively to the prior period presented. We reclassified unamortized debt issuance costs from other noncurrent assets
to long-term debt. (d) Capital expenditures and investments include acquisitions, changes in capital accruals and capitalized interest. (e) Includes intersegment sales.
(f) Sales revenue less cost of refinery inputs and purchased products, divided by total refinery throughputs. Excludes lower of cost or market inventory valuation
adjustment. (g) The price paid by consumers less the cost of refined products, including transportation, consumer excise taxes and bankcard processing fees, divided
by gasoline and distillate sales volumes. Excludes lower of cost or market inventory valuation adjustment. (h) Includes amounts related to unconsolidated equity method
investments. Includes the MarkWest results beginning on the Dec. 4, 2015, merger date.
MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT15
BOARD OF DIRECTORS
Standing (left to right):
Abdulaziz F. Alkhayyal
Retired Senior Vice
President, Industrial
Relations, Saudi Aramco.
Mr. Alkhayyal joined
Saudi Aramco in 1981
and held positions of
increasing responsibility
before being named
senior vice president,
refining, marketing and
international in 2001, and
vice president, industrial
relations in 2007.
Seated (left to right):
Frank M. Semple
Retired Chairman,
President and CEO,
MarkWest Energy
Partners, L.P. Mr. Semple
joined MarkWest Energy
Partners, L.P. in 2003 as
president and CEO, and
was elected chairman
in 2008. He completed a
22-year career with The
Williams Companies and
WilTel Communications
prior to MarkWest.
Steven A. Davis
Former Chairman and
CEO, Bob Evans Farms,
Inc. Mr. Davis previously
served as president
of Long John Silver’s
and A&W All-American
Food Restaurants, and
held executive and
operational positions
in Yum! Brands’ Pizza
Hut division and Kraft
General Foods.
John P. Surma
Retired Chairman and
CEO, United States
Steel Corporation. Prior
to USS, Mr. Surma
held various leadership
positions at Marathon
Oil Company, including
senior vice president of
Finance and Accounting,
president of Speedway
SuperAmerica LLC,
and president of
Marathon Ashland
Petroleum LLC.
James E. Rohr
Retired Chairman and CEO,
The PNC Financial Services
Group, Inc. Mr. Rohr joined
PNC in 1972, serving
in various capacities of
increasing responsibility. He
was named CEO in 2000 and
oversaw record growth for
PNC before stepping down
as CEO in 2013.
Evan Bayh
Senior Advisor, Apollo
Global Management and
Partner, McGuireWoods
LLP. Sen. Bayh was
U.S. senator from, and
governor of, Indiana.
Sen. Bayh served on
numerous Senate
committees, holding
key leadership roles on
several of them.
Charles E. Bunch
Retired Chairman and
CEO, PPG Industries.
Mr. Bunch joined PPG
in 1979 and held
various positions of
increasing responsibility
before being appointed
president, chief
operating officer and
board member in 2002,
and chairman and CEO
in 2005. He retired as
CEO in 2015 and as
chairman in 2016.
John W. Snow
Non-Executive Chairman,
Cerberus Capital
Management, L.P. Prior to
Cerberus Capital, Mr. Snow
was U.S. secretary of the
Treasury during the George W.
Bush administration. He also
was chairman and CEO of CSX
Corporation and held several
high-ranking positions in the
Department of Transportation
during the Ford administration.
Gary R. Heminger
Chairman, President and
CEO, Marathon Petroleum
Corporation. Mr. Heminger
joined Marathon Oil Company
in 1975 and held various
leadership positions, including
head of Marathon’s downstream
operations beginning in 2001.
Mr. Heminger was named
president and CEO of Marathon
Petroleum Corporation in 2011,
and chairman in 2016.
David A. Daberko
Lead Director, Marathon
Petroleum Corporation.
Mr. Daberko joined
National City Bank in 1968
and went on to hold a
number of management
positions. He was named
chairman of the board and
chief executive officer of
National City Corporation
in 1995 and served in
those capacities until his
retirement in 2007.
Donna A. James
Managing Director, Lardon
& Associates, LLC. Before
establishing Lardon &
Associates, Ms. James was
president of Nationwide
Strategic Investments. Prior to
being president, Ms. James
held various executive positions
at Nationwide. Ms. James is
founder and chair of The Center
for Healthy Families and is the
former chair of the National
Women’s Business Council.
MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT1616 MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT
CORPORATE OFFICERS
Standing (left to right):
Suzanne Gagle
Vice President and
General Counsel
Randy S. Nickerson
Executive Vice President,
Corporate Strategy
Molly R. Benson
Vice President, Corporate
Secretary and Chief
Compliance Officer
John R. Haley
Vice President, Tax
Rodney P. Nichols
Senior Vice President,
Human Resources and
Administrative Services
John J. Quaid
Vice President and
Controller
Thomas Kaczynski
Vice President,
Finance and
Treasurer
David L. Whikehart
Vice President,
Environment, Safety
and Corporate Affairs
Donald W. Wehrly
Vice President and
Chief Information Officer
Thomas M. Kelley
Senior Vice President,
Marketing
Seated (left to right):
John S. Swearingen
Senior Vice President,
Transportation and Logistics
Anthony R. Kenney
President, Speedway LLC
Donald C. Templin
Executive Vice President
Gary R. Heminger
Chairman, President and
Chief Executive Officer
Timothy T. Griffith
Senior Vice President and
Chief Financial Officer
Raymond L. Brooks
Senior Vice President,
Refining
C. Michael Palmer
Senior Vice President,
Supply, Distribution and
Planning
MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT1617 [This Page Left Blank Intentionally]
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
Í ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 2016
OR
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number 001-35054
Marathon Petroleum Corporation
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
27-1284632
(I.R.S. Employer Identification No.)
539 South Main Street, Findlay, OH 45840-3229
(Address of principal executive offices)
(419) 422-2121
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act
Title of Each Class
Common Stock, par value $.01
Name of Each Exchange on Which Registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes Í No ‘
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ‘ No Í
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the
past 90 days. Yes Í No ‘
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes Í No ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. Í
Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (Check one):
Large accelerated filer Í Accelerated filer ‘ Non-accelerated filer ‘ Smaller reporting company ‘
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ‘ No Í
The aggregate market value of Common Stock held by non-affiliates as of June 30, 2016 was approximately $20.0 billion.
This amount is based on the closing price of the registrant’s Common Stock on the New York Stock Exchange on June 30,
2016. Shares of Common Stock held by executive officers and directors of the registrant are not included in the computation.
The registrant, solely for the purpose of this required presentation, has deemed its directors and executive officers to be
affiliates.
There were 527,782,929 shares of Marathon Petroleum Corporation Common Stock outstanding as of February 13, 2017.
Portions of the registrant’s proxy statement relating to its 2017 Annual Meeting of Shareholders, to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, are incorporated by
reference to the extent set forth in Part III, Items 10-14 of this Report.
Documents Incorporated By Reference
Unless otherwise stated or the context otherwise indicates, all references in this Annual Report on Form 10-K to “MPC,” “us,”
“our,” “we” or “the Company” mean Marathon Petroleum Corporation and its consolidated subsidiaries.
MARATHON PETROLEUM CORPORATION
Table of Contents
PART I
PART II
Item 1.
Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Properties
Legal Proceedings
Item 4. Mine Safety Disclosures
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Item 6.
Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
Item 15. Exhibits and Financial Statement Schedules
Item 16.
Form 10-K Summary
SIGNATURES
PART III
PART IV
Page
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105
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189
190
Throughout this report, the following company or industry specific terms and abbreviations are used:
GLOSSARY OF TERMS
ASC
ASR
ATB
barrel
DEI
EBITDA (a non-GAAP financial measure)
EIA
EPA
FASB
FCC
FERC
IDR
LCM
LIBO Rate
LIFO
LLS
mbpd
mbpcd
Mcf
mmbpcd
MMcf/d
MMBtu
NYMEX
NYSE
NGL
PADD
OPEC
OSHA
OTC
ppb
ppm
RFS2
RIN
ROUX
SEC
STAR
ULSD
US GAAP
USGC
UST
VIE
VPP
WTI
Accounting Standards Codification
Accelerated share repurchase
Articulated tug barges
One stock tank barrel, or 42 United States gallons liquid volume,
used in reference to crude oil or other liquid hydrocarbons.
Designated Environmental Incidents
Earnings Before Interest, Tax, Depreciation and Amortization
United States Energy Information Administration
United States Environmental Protection Agency
Financial Accounting Standards Board
Fluid Catalytic Cracking
Federal Energy Regulatory Commission
Incentive Distribution Rights
Lower of cost or market
London Interbank Offered Rate
Last in, first out
Louisiana Light Sweet crude oil, an oil index benchmark price
Thousand barrels per day
Thousand barrels per calender day
One thousand cubic feet of natural gas
Million barrels per calender day
One million cubic feet of natural gas per day
One million British thermal units per day
New York Mercantile Exchange
New York Stock Exchange
Natural gas liquids, such as ethane, propane, butanes and natural
gasoline
Petroleum Administration for Defense District
Organization of Petroleum Exporting Countries
United States Occupational Safety and Health Administration
Over-the-Counter
Parts per billion
Parts per million
Revised Renewable Fuel Standard program, as required by the
Energy Independence and Security Act of 2007
Renewable Identification Number
Residual Oil Upgrader Expansion
Securities and Exchange Commission
South Texas Asset Repositioning
Ultra-low sulfur diesel
Accounting principles generally accepted in the United States
U.S. Gulf Coast
Underground storage tank
Variable interest entity
Voluntary Protection Program
West Texas Intermediate crude oil, an oil index benchmark price
1
Disclosures Regarding Forward-Looking Statements
This Annual Report on Form 10-K, particularly Item 1. Business, Item 1A. Risk Factors, Item 3. Legal
Proceedings, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
and Item 7A. Quantitative and Qualitative Disclosures about Market Risk, includes forward-looking statements.
You can identify our forward-looking statements by words such as “anticipate,” “believe,” “design,” “estimate,”
“objective,” “expect,” “forecast,” “outlook,” “goal,” “guidance,” “imply,” “intend,” “plan,” “predict,”
“prospective,” “project,” “opportunity,” “potential,” “position,” “pursue,” “strategy,” “seek,” “target,” “could,”
“may,” “should,” “would,” “will” or other similar expressions that convey the uncertainty of future events or
outcomes. In accordance with “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995,
these statements are accompanied by cautionary language identifying important factors, though not necessarily
all such factors, that could cause future outcomes to differ materially from those set forth in the forward-looking
statements.
Forward-looking statements include, but are not limited to, statements that relate to, or statements that are subject
to risks, contingencies or uncertainties that relate to:
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future levels of revenues, refining and marketing gross margins, operating costs, retail gasoline and
distillate gross margins, merchandise margins, income from operations, net income or earnings per
share;
anticipated volumes of feedstock, throughput, sales or shipments of refined products;
anticipated levels of regional, national and worldwide prices of crude oil, natural gas, NGLs and
refined products;
anticipated levels of crude oil and refined product inventories;
future levels of capital, environmental or maintenance expenditures, general and administrative and
other expenses;
the success or timing of completion of ongoing or anticipated capital or maintenance projects;
business strategies, growth opportunities and expected investments, including strategic initiatives and
actions, as well as planned equity investments in pipeline projects;
expectations regarding the acquisition or divestiture of assets as well as the strategic initiatives
discussed herein, such as the proposed accelerated dropdown of assets to MPLX LP and plans to
exchange our economic interest in the general partner, including IDRs, for newly issued MPLX LP
common units;
our share repurchase authorizations,
repurchases;
including the timing and amounts of any common stock
the adequacy of our capital resources and liquidity, including but not limited to, availability of
sufficient cash flow to execute our business plan;
the effect of restructuring or reorganization of business components;
the potential effects of judicial or other proceedings on our business, financial condition, results of
operations and cash flows; and
the anticipated effects of actions of third parties such as competitors, activist investors or federal,
foreign, state or local regulatory authorities or plaintiffs in litigation.
We have based our forward-looking statements on our current expectations, estimates and projections about our
industry and our company. We caution that these statements are not guarantees of future performance, and you
should not rely unduly on them, as they involve risks, uncertainties and assumptions that we cannot predict. In
2
to significant business, economic, competitive,
addition, we have based many of these forward-looking statements on assumptions about future events that may
prove to be inaccurate. While our management considers these assumptions to be reasonable, they are inherently
subject
risks, contingencies and
uncertainties, most of which are difficult to predict and many of which are beyond our control. Accordingly, our
actual results may differ materially from the future performance that we have expressed or forecast in our
forward-looking statements. Differences between actual results and any future performance suggested in our
forward-looking statements could result from a variety of factors, including the following:
regulatory and other
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volatility or degradation in general economic, market, industry or business conditions;
availability and pricing of domestic and foreign supplies of natural gas, NGLs and crude oil and other
feedstocks;
the ability of the members of the OPEC to agree on and to influence crude oil price and production
controls;
availability and pricing of domestic and foreign supplies of refined products such as gasoline, diesel
fuel, jet fuel, home heating oil and petrochemicals;
foreign imports and exports of crude oil, refined products, natural gas and NGLs;
refining industry overcapacity or under capacity;
changes in producer customers’ drilling plans or in volumes of throughput of crude oil, natural gas,
NGLs, refined products or other hydrocarbon-based products;
changes in the cost or availability of third-party vessels, pipelines, railcars and other means of
transportation for crude oil, natural gas, NGLs, feedstocks and refined products;
changes to the expected construction costs and timing of projects;
the price, availability and acceptance of alternative fuels and alternative-fuel vehicles and laws
mandating such fuels or vehicles;
fluctuations in consumer demand for refined products, natural gas and NGLs, including seasonal
fluctuations;
political and economic conditions in nations that consume refined products, natural gas and NGLs,
including the United States, and in crude oil producing regions, including the Middle East, Africa,
Canada and South America;
actions taken by our competitors, including pricing adjustments, expansion of retail activities, the
expansion and retirement of refining capacity and the expansion and retirement of pipeline capacity,
processing, fractionation and treating facilities in response to market conditions;
completion of pipeline projects within the United States;
changes in fuel and utility costs for our facilities;
failure to realize the benefits projected for capital projects, or cost overruns associated with such
projects;
• modifications to MPLX LP earnings and distribution growth objectives;
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the ability to successfully implement growth opportunities, including strategic initiatives and actions;
the time, costs and ability to obtain regulatory or other approvals, waivers or consents required to
consummate strategic actions discussed herein, such as the proposed accelerated dropdown of assets to
MPLX LP;
the risk that the synergies from the MarkWest Merger (defined below) may not be fully realized or may
take longer to realize than expected;
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risks and uncertainties associated with intangible assets, including any future goodwill or intangible
assets impairment charges;
the ability to realize the strategic benefits of joint venture opportunities;
accidents or other unscheduled shutdowns affecting our refineries, machinery, pipelines, processing,
fractionation and treating facilities or equipment, or those of our suppliers or customers;
unusual weather conditions and natural disasters, which can unforeseeably affect
availability of crude oil and other feedstocks and refined products;
the price or
acts of war, terrorism or civil unrest that could impair our ability to produce refined products, receive
feedstocks or to gather, process, fractionate or transport crude oil, natural gas, NGLs or refined
products;
state and federal environmental, economic, health and safety, energy and other policies and regulations,
including the cost of compliance with the renewable fuel standard program;
adverse changes in laws including with respect to tax and regulatory matters;
rulings, judgments or settlements and related expenses in litigation or other legal, tax or regulatory
matters, including unexpected environmental remediation costs, in excess of any reserves or insurance
coverage;
political pressure and influence of environmental groups upon policies and decisions related to the
production, gathering, refining, processing, fractionation, transportation and marketing of crude oil or
other feedstocks, refined products, natural gas, NGLs or other hydrocarbon-based products;
labor and material shortages;
the maintenance of satisfactory relationships with labor unions and joint venture partners;
the ability and willingness of parties with whom we have material relationships to perform their
obligations to us;
the market price of our common stock and its impact on our share repurchase authorizations;
changes in the credit ratings assigned to our debt securities and trade credit, changes in the availability
of unsecured credit and changes affecting the credit markets generally;
capital market conditions and our ability to raise adequate capital to execute our business plan,
including our recently announced strategic actions;
the costs, disruption and diversion of management’s attention associated with campaigns commenced
by activist investors; and
the other factors described in Item 1A. Risk Factors.
We undertake no obligation to update any forward-looking statements except to the extent required by applicable
law.
4
PART I
Item 1. Business
Overview
Marathon Petroleum Corporation (“MPC”) has 129 years of experience in the energy business with roots tracing
back to the formation of the Ohio Oil Company in 1887. We are one of the largest independent petroleum
product refining, marketing, retail and transportation businesses in the United States and the largest east of the
Mississippi. With the merger of MPLX LP (“MPLX”), the midstream master limited partnership sponsored by
MPC, and MarkWest Energy Partners, L.P. (“MarkWest”) effective December 4, 2015 (the “MarkWest
Merger”), we are one of the largest natural gas processors in the United States and the largest processor and
fractionator in the Marcellus and Utica shale regions.
Our operations consist of three reportable operating segments: Refining & Marketing; Speedway; and
Midstream. Each of these segments is organized and managed based upon the nature of the products and services
it offers.
• Refining & Marketing – refines crude oil and other feedstocks at our seven refineries in the Gulf Coast
and Midwest regions of the United States, purchases refined products and ethanol for resale and
distributes refined products through various means, including terminals and trucks that we own or
operate. We sell refined products to wholesale marketing customers domestically and internationally,
buyers on the spot market, our Speedway® business segment and to independent entrepreneurs who
operate Marathon® retail outlets.
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Speedway – sells transportation fuels and convenience products in the retail market in the Midwest,
East Coast and Southeast regions of the United States.
• Midstream – includes the operations of MPLX and certain other related operations. The Midstream
segment gathers, processes and transports natural gas; gathers, transports, fractionates, stores and
markets NGLs and transports and stores crude oil and refined products.
See Item 8. Financial Statements and Supplementary Data – Note 10 for operating segment and geographic
financial information, which is incorporated herein by reference.
Corporate History and Structure
MPC was incorporated in Delaware on November 9, 2009 in connection with an internal restructuring of
Marathon Oil Corporation (“Marathon Oil”). On May 25, 2011, the Marathon Oil board of directors approved the
spinoff of its Refining, Marketing & Transportation Business (“RM&T Business”) into an independent, publicly
traded company, MPC, through the distribution of MPC common stock to the stockholders of Marathon Oil
common stock on June 30, 2011 (the “Spinoff”). Following the Spinoff, Marathon Oil retained no ownership
interest in MPC, and each company has separate public ownership, boards of directors and management. All
subsidiaries and equity method investments not contributed by Marathon Oil to MPC remained with Marathon
Oil and, together with Marathon Oil, are referred to as the “Marathon Oil Companies.” On July 1, 2011, our
common stock began trading “regular-way” on the NYSE under the ticker symbol “MPC.”
Recent Developments
Strategic Actions to Enhance Shareholder Value
On January 3, 2017, we announced plans to significantly accelerate the dropdown of assets with an estimated
$1.4 billion of MLP-eligible annual EBITDA to MPLX now expected to be completed in 2017, subject to
requisite approvals and regulatory clearances, including tax clearance, and market and other conditions. In
5
conjunction with the completion of the dropdowns, we also expect to exchange our economic interests in the
general partner of MPLX, including incentive distribution rights, for newly issued MPLX common units.
Additionally, a special committee of our board of directors, with the assistance of an independent financial
advisor, will conduct a full and thorough review of Speedway to ensure optimum value is being delivered to
shareholders over the long term. We expect to provide an update on the review by mid-2017. This significant
acceleration of dropdowns and other announced strategic actions are designed to further highlight the substantial
value embedded in our integrated businesses.
See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for
additional information on our strategic actions to enhance shareholder value.
Acquisitions and Investments
Pipeline Investments
On September 1, 2016, Enbridge Energy Partners L.P. (“Enbridge Energy Partners”) announced that its affiliate,
North Dakota Pipeline LLC (“North Dakota Pipeline”), would withdraw certain pending regulatory applications
for its Sandpiper pipeline project and that the project would be deferred indefinitely. These decisions were
considered to indicate an impairment of the costs capitalized to date on the project. As the operator of North
Dakota Pipeline and the entity responsible for maintaining its financial records, Enbridge Energy Partners
completed a fixed asset impairment analysis as of August 31, 2016, in accordance with ASC Topic 360. Based on
the estimated liquidation value of the fixed assets, an impairment charge was recorded by North Dakota Pipeline.
Based on our 37.5 percent ownership of North Dakota Pipeline, we recognized approximately $267 million of
this charge in the third quarter of 2016 through “Income (loss) from equity method investments” on the
accompanying consolidated statements of income which impaired virtually all of our $301 million investment in
the project. See Item 8. Financial Statements and Supplementary Data – Note 17 for information regarding the
charge.
On February 15, 2017, MPLX closed on the previously announced transaction to acquire a partial, indirect equity
interest in the Dakota Access Pipeline (“DAPL”) and Energy Transfer Crude Oil Company Pipeline (“ETCOP”)
projects, collectively referred to as the Bakken Pipeline system, through a joint venture with Enbridge Energy
Partners. MPLX contributed $500 million of the $2 billion purchase price paid by the joint venture to acquire a
36.75 percent indirect equity interest in the Bakken Pipeline system from Energy Transfer Partners, L.P. (“ETP”)
and Sunoco Logistics Partners, L.P. (“SXL”). MPLX holds, through a subsidiary, a 25 percent interest in the joint
venture, which equates to an approximate 9.2 percent indirect equity interest in the Bakken Pipeline system. The
Bakken Pipeline system is currently expected to deliver in excess of 470 mbpd of crude oil from the Bakken/
Three Forks production area in North Dakota to the Midwest through Patoka, Illinois and ultimately to the Gulf
Coast. Furthermore, MPC expects to become a committed shipper on the Bakken Pipeline system under terms of
an on-going open season.
In connection with closing the transaction with ETP and SXL, Enbridge Energy Partners canceled MPC’s
transportation services agreement with respect to the Sandpiper pipeline project and released MPC from paying
any termination fee per that agreement.
In July 2014, we exercised our option to acquire a 35 percent ownership interest in Enbridge Inc.’s Southern
Access Extension (“SAX”) pipeline which runs from Flanagan, Illinois to Patoka, Illinois. This option resulted
from our agreement to be the anchor shipper on the SAX pipeline. We have contributed $299 million since
project inception. The pipeline became operational in December 2015. Our investment in the pipeline is included
in our Midstream segment.
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Marine Investments
We currently have indirect ownership interests in two ocean vessel joint ventures with Crowley Maritime
Corporation (“Crowley”), which were established to own and operate Jones Act vessels in petroleum product
service. We have invested a total of $189 million in these two ventures as described further below.
In September 2015, we acquired a 50 percent ownership interest in a joint venture, Crowley Ocean Partners LLC
(“Crowley Ocean Partners”), with Crowley. The joint venture owns and operates four new Jones Act product
tankers, three of which are leased to MPC. Two of the vessels were delivered in 2015 and the remaining two
were delivered in 2016. We contributed a total of $141 million for the four vessels.
In May 2016, MPC and Crowley formed a new ocean vessel joint venture, Crowley Coastal Partners LLC
(“Crowley Coastal Partners”), in which MPC has a 50 percent ownership interest. MPC and Crowley each
contributed their 50 percent ownership in Crowley Ocean Partners, discussed above, into Crowley Coastal
Partners. In addition, we contributed $48 million in cash and Crowley contributed its 100 percent ownership
interest in Crowley Blue Water Partners LLC (“Crowley Blue Water Partners”) to Crowley Coastal Partners.
Crowley Blue Water Partners is an entity that owns and operates three 750 Series ATB vessels that are leased to
MPC. We account for our 50 percent interest in Crowley Coastal Partners as part of our Midstream segment
using the equity method of accounting.
See Item 8. Financial Statements and Supplementary Data – Note 6 for additional information on Crowley
Coastal Partners as a VIE and Note 25 for information on our conditional guarantee of the indebtedness of
Crowley Ocean Partners and Crowley Blue Water Partners.
MarkWest Merger
On December 4, 2015, a wholly-owned subsidiary of MPLX, the midstream master limited partnership sponsored
by MPC, merged with MarkWest, whereby MarkWest became a wholly-owned subsidiary of MPLX. Each
common unit of MarkWest issued and outstanding immediately prior to the effective time of the MarkWest
Merger was converted into a right to receive 1.09 common units of MPLX representing limited partner interests
in MPLX, plus a one-time cash payment of $6.20 per unit. Each Class B unit of MarkWest outstanding
immediately prior to the merger was converted into the right to receive one Class B unit of MPLX having
substantially similar rights, including conversion and registration rights, and obligations that the Class B units of
MarkWest had immediately prior to the merger. At closing, we contributed $1.23 billion in cash to MPLX to pay
the cash consideration to MarkWest common unitholders. We agreed to contribute an additional total of
$50 million in cash to MPLX for the cash consideration to be paid upon the conversion of the MPLX Class B
Units to MPLX common units in equal installments, the first $25 million of which was paid in July 2016 and the
second $25 million of which will be paid in July 2017. These contributions are with respect to MPC’s existing
interests in MPLX (including IDRs) and not in consideration of new units or other equity interest in MPLX. We
assigned the total consideration transferred of $8.61 billion, including the $7.33 billion fair value of the equity
consideration and the $1.28 billion of cash contributions, to the fair value of the assets acquired and liabilities
and noncontrolling interest assumed in the MarkWest Merger, with the excess recorded as goodwill. During the
first quarter of 2016, the preliminary fair value measurements of assets acquired and liabilities assumed recorded
in the 2015 year-end financial statements were revised based on additional analysis. These adjustments to the fair
values of property, plant and equipment, intangibles and equity investments, among other items, resulted in an
offsetting reduction to goodwill of approximately $241 million. As a result, we recognized total assets acquired
including $8.52 billion of property plant and equipment and $2.60 billion of equity
of $11.91 billion,
investments, and total liabilities assumed and noncontrolling interests of $5.51 billion, including $4.57 billion of
assumed debt. Goodwill is not amortized, but rather is tested for impairment annually or more frequently if
warranted due to events or changes in circumstances. MPLX recorded an impairment charge of approximately
$129 million in the first quarter of 2016 to impair a portion of the $2.21 billion of goodwill, as adjusted, recorded
in connection with the MarkWest Merger. In the second quarter of 2016, MPLX completed its purchase price
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allocation, which resulted in an additional $1 million of impairment expense that would have been recorded in
the first quarter of 2016 had the purchase price allocation been completed as of that date. This adjustment to the
impairment expense was the result of completing an evaluation of the deferred tax liabilities associated with the
MarkWest Merger and their impact on the resulting goodwill that was recognized. Our financial results and
operating statistics reflect the results of MarkWest from the date of the acquisition.
Consistent with our strategy to grow our midstream business, the MarkWest Merger combines one of the nation’s
largest processors of natural gas and the largest processor and fractionator in the Marcellus and Utica shale
regions with a rapidly growing crude oil and refined products logistics partnership sponsored by MPC. The
complementary aspects of the highly diverse asset base of MarkWest, MPLX and MPC provide significant
additional opportunities across multiple segments of the hydrocarbon value chain. The combined entity furthers
MarkWest’s leading midstream presence in the Marcellus and Utica shales by allowing it to pursue additional
midstream projects, allowing producer customers to achieve superior value for their growing production in these
important shale regions.
Hess Retail Acquisition
On September 30, 2014, we acquired from Hess Corporation (“Hess”) all of its retail locations, transport
operations and shipper history on various pipelines, including approximately 40 mbpd on Colonial Pipeline, for
$2.82 billion. We refer to these assets as “Hess’ Retail Operations and Related Assets” and substantially all of
these assets are part of our Speedway segment. This acquisition significantly expanded our Speedway presence
from nine to 22 states throughout the East Coast and Southeast and is aligned with our strategy to grow our retail
business. This acquisition also enables us to further leverage our integrated refining and transportation
operations, providing an assured outlet for incremental sales from our refining system. The transaction was
funded with a combination of debt and available cash. Our financial results and operating statistics reflect the
results of Hess’ Retail Operations and Related Assets from the date of the acquisition.
See Item 8. Financial Statements and Supplementary Data – Note 5 for additional information on these
acquisitions and investments.
MPLX LP
Overview
MPLX is a diversified, growth-oriented publicly traded master limited partnership formed by us to own, operate,
develop and acquire midstream energy infrastructure assets. MPLX is engaged in the gathering, processing and
transportation of natural gas; the gathering, transportation, fractionation, storage and marketing of NGLs; and the
gathering, transportation and storage of crude oil and refined petroleum products. On December 4, 2015, we
completed the MarkWest Merger, whereby MarkWest became a wholly-owned subsidiary of MPLX.
As of December 31, 2016, we owned a 25.5 percent interest in MPLX, including a two percent general partner
interest. This ownership percentage reflects the conversion of the MPLX Class B Units in July 2017 at 1.09 to
1.00. MPLX is a VIE because the limited partners of MPLX do not have substantive kick-out or substantive
participating rights over the general partner. We are the primary beneficiary of MPLX because in addition to
significant economic interest, we also have the power, through our 100 percent ownership of the general partner,
to control the decisions that most significantly impact MPLX. We therefore consolidate MPLX and record a
noncontrolling interest for the 74.5 percent interest owned by the public. The components of our noncontrolling
interest consist of equity-based noncontrolling interest and redeemable noncontrolling interest. The redeemable
noncontrolling interest relates to MPLX’s preferred units, discussed below.
The creditors of MPLX do not have recourse to MPC’s general credit through guarantees or other financial
arrangements. The assets of MPLX are the property of MPLX and cannot be used to satisfy the obligations of
MPC.
8
Reorganization Transactions
On September 1, 2016, MPC, MPLX and various affiliates initiated a series of reorganization transactions in
order to simplify MPLX’s ownership structure and its financial and tax reporting. In connection with these
transactions, MPC contributed $225 million to MPLX, and all of the issued and outstanding MPLX Class A
Units, all of which were held by MarkWest Hydrocarbon L.L.C. (“MarkWest Hydrocarbon”), a wholly-owned
subsidiary of MPLX, were exchanged for newly issued common units representing limited partner interests in
MPLX. The simple average of the closing prices of MPLX common units for the last 10 trading days prior to
September 1, 2016 was used for purposes of these transactions. As a result of these transactions, MPC increased
its ownership interest in MPLX by 7 million MPLX common units, or approximately 1 percent.
Private Placement of Preferred Units
On May 13, 2016, MPLX completed the private placement of approximately 30.8 million 6.5 percent Series A
Convertible Preferred Units (the “MPLX Preferred Units”) at a cash price of $32.50 per unit. The aggregate net
proceeds of approximately $984 million from the sale of the MPLX Preferred Units was used for capital
expenditures, repayment of debt and general partnership purposes.
The MPLX Preferred Units rank senior to all MPLX common units with respect to distributions and rights upon
liquidation. The holders of the MPLX Preferred Units are entitled to receive quarterly distributions equal to
$0.528125 per unit commencing for the quarter ended June 30, 2016, with a prorated amount from the date of
issuance. Following the second anniversary of the issuance of the MPLX Preferred Units, the holders of the
MPLX Preferred Units will receive as a distribution the greater of $0.528125 per unit or the amount of per unit
distributions paid to common unitholders. The MPLX Preferred Units are convertible into MPLX common units
on a one for one basis after three years, at the purchasers’ option, and after four years at MPLX’s option, subject
to certain conditions.
The MPLX Preferred Units are considered redeemable securities due to the existence of redemption provisions
upon a deemed liquidation event which is considered outside MPLX’s control. Therefore they are presented as
temporary equity in the mezzanine section of the consolidated balance sheets. We have recorded the MPLX
Preferred Units at their issuance date fair value, net of issuance costs. Since the MPLX Preferred Units are not
currently redeemable and not probable of becoming redeemable in the future, adjustment to the initial carrying
amount is not necessary and would only be required if it becomes probable that the security would become
redeemable.
Contribution of Inland Marine Business to MPLX
On March 31, 2016, we contributed our inland marine business to MPLX in exchange for 23 million MPLX
common units and 460 thousand MPLX general partner units. The number of units we received from MPLX was
determined by dividing $600 million by the volume weighted average NYSE price of MPLX common units for
the 10 trading days preceding March 14, 2016, pursuant to the Membership Interests Contribution Agreement.
We also agreed to waive first-quarter 2016 common unit distributions, IDRs and general partner distributions
with respect to the common units issued in this transaction. The contribution of our inland marine business was
accounted for as a transaction between entities under common control and therefore, we did not record a gain or
loss.
Public Offering
On February 10, 2017, MPLX completed a public offering of $1.25 billion aggregate principal amount of 4.125%
unsecured senior notes due March 2027 (the “MPLX 2027 Senior Notes”) and $1.0 billion aggregate principal
amount of 5.200% unsecured senior notes due March 2047 (the “MPLX 2047 Senior Notes”). MPLX intends to
use the net proceeds from this offering for general partnership purposes, which may include, from time to time,
acquisitions (including the previously announced planned dropdown of assets from MPC) and capital
expenditures.
9
ATM Program
On August 4, 2016, MPLX entered into a Second Amended and Restated Distribution Agreement (the
“Distribution Agreement”) providing for the continuous issuance of MPLX common units, in amounts, at prices
and on terms to be determined by market conditions and other factors at the time of any offerings (such
continuous offering program, or at-the-market program, referred to as the “ATM Program”). MPLX expects to
use the net proceeds from sales under the ATM Program for general partnership purposes including repayment of
debt and funding for acquisitions, working capital requirements and capital expenditures.
During 2016, MPLX issued an aggregate of 26 million MPLX common units under the ATM Program,
generating net proceeds of approximately $776 million. As of December 31, 2016, $717 million of MPLX
common units remains available for issuance through the ATM Program under the Distribution Agreement.
See Item 8. Financial Statements and Supplementary Data – Note 4 for additional information on MPLX.
Our Competitive Strengths
Extensive Integrated Platform of Midstream, Retail and Refining Assets
We believe the relative scale of our integrated midstream, retail and refining assets distinguishes us from other
refining companies. We currently own, lease or have ownership interests in approximately 8,400 miles of crude
oil and products pipelines. Additionally, we have over 5,600 miles of natural gas and NGL pipelines. We also
own or have ownerships interests in one of the largest private domestic fleets of inland petroleum product barges
and one of the largest terminal operations in the United States, as well as trucking and rail assets. We operate this
transportation and distribution system in coordination with our refining and marketing network enabling us to
optimize raw material supplies and refined product distribution, and deliver important economies of scale across
our platform. Our Speedway segment, one of our largest distribution channels, is also our most ratable.
We believe our distribution system allows us to maximize the sales value of our products and minimize cost. We
also believe our integrated platform of assets gives us extensive flexibility and optionality to respond promptly to
dynamic market conditions, including weather-related and marketplace disruptions.
Competitively Positioned Marketing Operations Provide Assured Product Sales
We are one of the largest wholesale suppliers of gasoline and distillates to resellers within our market area. We
have two strong retail brands: Speedway® and Marathon®. We believe Speedway LLC, a wholly-owned
subsidiary, operates the second largest chain of company-owned and operated retail gasoline and convenience
stores in the United States, with approximately 2,730 convenience stores in 21 states throughout the Midwest,
East Coast and Southeast regions of the United States. In addition, our highly successful Speedy Rewards®
customer loyalty program, which averaged more than 5.7 million active members in 2016, provides us with a
unique competitive advantage and opportunity to increase our Speedway customer base at existing and new
Speedway locations. The Marathon brand is an established motor fuel brand primarily in the Midwest and
Southeast regions of the United States, comprised of approximately 5,500 retail outlets operated by independent
entrepreneurs in 19 states as of December 31, 2016. The Marathon brand has been a vehicle for sales volume
growth in existing and contiguous markets.
We consider assured sales as those sales we make to Marathon brand customers, our Speedway operations and to
our wholesale customers with whom we have required minimum volume sales contracts. Our assured sales
currently account for approximately 70% of our gasoline production. We believe having assured sales brings
ratability to our distribution systems, provides a solid base to enhance our overall supply reliability and allows us
to efficiently and effectively optimize our operations between our refineries, pipelines and terminals.
10
High Quality Network of Strategically Located Assets
We believe we are the largest crude oil refiner in the Midwest and the third largest in the United States based on
crude oil refining capacity. We own a seven-plant refinery network, with approximately 1.8 mmbpcd of crude oil
throughput capacity. Our refineries process a wide range of crude oils, feedstocks and condensate, including
heavy and sour crude oils, which can generally be purchased at a discount to sweet crude oil, and produce
transportation fuels such as gasoline and distillates, specialty chemicals and other refined products. While we
have historically processed significant quantities of heavy and sour crude oils, our refineries have the ability to
process approximately 65 percent to 70 percent light sweet crude oils.
The geographic locations of our refineries provide us with strategic advantages. Located in PADD II and PADD
III, which consist of states in the Midwest and the Gulf Coast regions of the United States, our refineries have the
ability to procure crude oil from a variety of supply sources, including domestic, Canadian and other foreign
sources, which provides us with flexibility to optimize crude supply costs. For example, geographic proximity to
various United States shale oil regions and Canadian crude oil supply sources allows our refineries access to
price-advantaged crude oils and lower transportation costs than certain of our competitors. Our refinery locations
and midstream distribution system also allow us to access refined product export markets and to serve a broad
range of key end-user markets across the United States quickly and cost-effectively.
Our Midstream segment assets are similarly located in the Midwest and Gulf Coast regions of the United States,
which collectively comprised approximately 81 percent of total United States crude distillation capacity and
approximately 81 percent of total United States finished products demand for the year ended December 31, 2016,
according to the EIA. MPLX, through MarkWest, its wholly-owned subsidiary, is the largest processor and
fractionator in the Marcellus and Utica shale regions. This significantly complements and creates strategic
opportunities for our Refining & Marketing segment and MPLX’s logistic assets in the same geographic
footprint. Our integrated midstream energy asset network links producers of natural gas, NGLs and crude oil
from some of the largest supply basins in the United States to domestic and international markets. Our midstream
gathering and processing operations include approximately 7,500 MMcf/d of natural gas processing capacity, 500
mbpd of fractionation capacity and more than 5,600 miles of gas gathering and NGL pipelines as of
December 31, 2016.
Our Speedway segment, which operates in the Midwest, East Coast and Southeast, complements our refining and
midstream assets providing a significant and ratable outlet for our refinery production. Our Speedway operations
have also enabled us to further leverage our integrated refining and transportation operations with its expansion
from nine to 21 states throughout the East Coast and Southeast. Speedway is a top tier performer in the
convenience store industry with the highest EBITDA per store per month of its public peers and leading positions
with respect to other comparisons based on light product volume, merchandise sales and total gross margin on a
per store per month basis.
11
* As of December 31, 2016
General Partner and Sponsor of MPLX
Our investment in MPLX provides us an efficient vehicle to invest in organic projects and pursue acquisitions of
midstream assets; all with the focus of enhancing our share price through our limited partner and general partner
interests in MPLX which tend to receive higher market multiples. MPLX’s liquidity, size, scale and access to the
capital markets should provide us a strong foundation to execute our strategy for growing our midstream business.
We have an extensive portfolio of MLP-qualifying midstream assets. We plan to offer assets from this portfolio,
which are estimated to generate annual EBITDA of approximately $1.4 billion, to MPLX as soon as practicable
in 2017, subject
including tax clearance, and market and other conditions. In
conjunction with the completion of the dropdowns, we expect to pursue an exchange of our economic interests in
the general partner, including incentive distribution rights, for newly issued MPLX common units. Following the
exchange, we would continue to retain control of the general partner so that we can continue to optimize our
refinery feedstock and distribution networks.
to regulatory clearances,
See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for
additional information on these midstream assets, including the timing of these strategic actions.
12
Established Track Record of Profitability and Growing our Midstream and Retail Businesses
We have demonstrated an ability to achieve positive financial results throughout all stages of the refining cycle.
We believe our business mix and strategies position us well to continue to achieve competitive financial results.
Income generated by our Speedway segment is less sensitive to business cycles. Similarly, income from our
Midstream segment, which was significantly expanded through the MarkWest Merger, is more stable over
business cycles due to its long-term fee based contracts, while our Refining & Marketing segment enables us to
generate significant income and cash flow when market conditions are more favorable.
Strong Financial Position
As of December 31, 2016, we had $653 million in cash and cash equivalents and $4.18 billion in unused
committed borrowing facilities, excluding MPLX’s cash and cash equivalents of $234 million and its credit
facilities. We had $10.57 billion of debt at year-end, which represented 33 percent of our total capitalization.
This combination of strong liquidity and manageable leverage provides financial flexibility to fund our growth
projects and to pursue our business strategies.
Our Business Strategies
Maintain Top-Tier Safety and Environmental Performance
We remain committed to operating our assets in a safe and reliable manner and targeting continual improvement
in our safety record across all of our operations. We have a history of safe and reliable operations, which was
demonstrated again in 2016 with a strong process safety performance compared to the industry average. In
addition, our corporate headquarters, four of our refineries and eight additional facilities have earned
designations as an OSHA VPP Star site. We also remain committed to environmental stewardship by continuing
to improve the efficiency and reliability of our operations. We have earned 75 percent of the EPA’s Energy Star
recognitions awarded to refineries despite owning and operating just 10 percent of total U.S. refining capacity.
We proactively address our
regulatory requirements and encourage our operations to improve their
environmental performance through our DEI program, which establishes goals and measures environmental
performance. In 2016, we achieved our best performance since the current program began in 2010 with a third
straight year of improving performance. MarkWest will be incorporated into our DEI program in 2017.
Grow Higher Valued, Stable Cash Flow Businesses
We intend to continue to allocate significant portions of our capital to investments intended to grow our
midstream and retail businesses. These businesses typically have more predictable and stable income and cash
flows compared to our refining operations and we believe investors assign a higher value to such businesses.
MPLX is an important part of this strategy and the MarkWest Merger significantly expanded its midstream
activities. MPLX will consider organic growth projects that provide attractive returns and cash flows both within
its geographic footprint as well as in new regions. MPLX may pursue these opportunities as standalone projects,
with MPC or with other parties. MPLX has identified a number of potential projects over the next several years.
These primarily include projects to expand gathering, processing and fractionation infrastructure in the Marcellus
region.
Our Speedway segment is also an important part of this strategy. We significantly expanded Speedway’s
presence along the East Coast and Southeast through the acquisition of Hess’ Retail Operations and Related
Assets in September 2014. We intend to continue growing Speedway’s sales and profitability by focusing on
organic growth through filling in voids in our existing markets by building new locations and by rebuilding or
remodeling existing stores. We will also look to expand our presence by opportunistically acquiring high quality
stores in new and existing markets. We have identified numerous opportunities for new convenience stores or
store rebuilds in our existing market, with a continued focus in Pennsylvania and Tennessee, as well as
13
opportunities for growth in new markets including Georgia, South Carolina and the Florida panhandle. We also
plan to capitalize on diesel demand growth by building out our network of commercial fueling lane locations
within our core market which cater to local and regional transport fleets.
In keeping with our practice of evaluating shareholder value creation, a special committee of our board of
directors, with the assistance of an independent financial advisor, will conduct a full and thorough review of
strategic and financial alternatives for Speedway. We expect to provide an update on the review by mid-2017.
Maintain Long-Term Integrated Relationships with Our Producer Customers
MPLX’s MarkWest subsidiary has developed long-term integrated relationships with its producer customers.
These relationships are characterized by an intense focus on customer service and a deep understanding of
producer customers’ requirements coupled with the ability to increase the level of our midstream services in
response to their midstream requirements. Through collaborative planning with these producer customers,
MPLX’s MarkWest subsidiary continues to construct high-quality midstream infrastructure and provide unique
solutions that are critical to the ongoing success of producer customers’ development plans. As a result of these
efforts, MarkWest has been a top-rated midstream service provider in customer satisfaction since 2006, as
determined by an independent research provider.
Pursue Margin Enhancing Investments in Refining to Deliver Top Quartile Refining Performance
Our refineries are well positioned to benefit from the growing crude oil and condensate production in North
America, including the Bakken, Eagle Ford and Utica shale regions, along with the Canadian oil sands. We are
also well positioned to export distillates, gasoline and other products.
We intend to enhance margins in our Refining & Marketing segment by realizing benefits from continuous
process improvements and targeted investments in our refining operations. Over the next five years, we intend to
create a world-class refining complex by investing approximately $1.5 billion in our Galveston Bay refinery
through the STAR project. This investment will fully integrate our Galveston Bay and Texas City refineries and
enable us to upgrade low value residual oil into higher value refined products and lower the refinery complex’s
cost of production. The project scope increases crude processing capacity, increases distillate and gas oil
recovery and improves the refinery’s overall reliability. We are also planning to expand the Galveston Bay
refinery’s product export capacity to reach high value markets. In addition, we are investing at our Garyville
refinery to increase ULSD production due to strong long-term distillate demand expectations.
Sustain Focus on Disciplined Capital Allocation and Shareholder Returns
We intend to maintain our focus on a disciplined and balanced approach to capital allocation, including return of
capital to shareholders, in a manner consistent with maintaining an investment-grade credit profile. Since
becoming a stand-alone company in June 2011, our dividend has increased by a 28 percent compound annual
growth rate and our board of directors has authorized share repurchases totaling $10 billion. Through open
market purchases and two ASR programs, we repurchased 202 million shares of our common stock for
approximately $7.44 billion, representing approximately 28 percent of our outstanding common shares when we
became a stand-alone company in June 2011. After the effects of these repurchases, $2.56 billion of the
$10 billion total authorization was available for future repurchases as of December 31, 2016. We achieved these
shareholder returns while also investing in the business and maintaining an investment-grade credit profile.
Cash proceeds from the planned dropdowns and ongoing MPLX common unit distributions resulting from the
dropdowns and other strategic actions are expected to fund the substantial ongoing return of capital to our
shareholders in a manner consistent with maintaining an investment-grade credit profile.
14
Utilize and Enhance our High Quality Employee Workforce
We utilize our high quality employee workforce by continuing to leverage our commercial skills. In addition, we
continue to enhance our workforce through selective hiring practices and effective training programs on safety,
environmental stewardship and other professional and technical skills.
The above discussion contains forward-looking statements with respect to the business and operations of MPC,
including our proposed strategic actions to enhance shareholder value, the ATM Program, our competitive strengths
and business strategies, including our expected investments and the adequacy of our capital resources and liquidity.
Factors that could impact our proposed strategic actions include, but are not limited to, the time, costs and ability to
obtain regulatory or other approvals and consents and otherwise consummate the strategic actions discussed herein; the
satisfaction or waiver of conditions in the agreements governing the strategic actions discussed herein; our ability to
achieve the strategic and other objectives related to the strategic actions discussed herein; the impact of adverse market
conditions affecting MPC’s and MPLX’s midstream businesses; adverse changes in laws including with respect to tax
and regulatory matters and our inability to agree with the MPLX conflicts committee with respect to the timing of and
value attributed to assets identified for dropdown. Factors that could affect the ATM Program and the timing of any
issuances under the ATM Program include, but are not limited to, market conditions, availability of liquidity and the
market price of MPLX’s common units. Factors that could impact our competitive strengths and business strategies,
including the adequacy of our capital resources and liquidity include, but are not limited to, changes to the expected
construction costs and timing of projects; continued/further volatility in and/or degradation of market and industry
conditions; the availability and pricing of crude oil and other feedstocks; slower growth in domestic and Canadian
crude supply; completion of pipeline capacity to areas outside the U.S. Midwest; consumer demand for refined
products; transportation logistics; the reliability of processing units and other equipment; MPC’s ability to successfully
implement growth opportunities; modifications to MPLX earnings and distribution growth objectives; compliance with
federal and state environmental, economic, health and safety, energy and other policies and regulations, including the
cost of compliance with the Renewable Fuel Standard, and/or enforcement actions initiated thereunder; changes to
MPC’s capital budget; other risk factors inherent to MPC’s industry. These factors, among others, could cause actual
results to differ materially from those set forth in the forward-looking statements. For additional information on
forward-looking statements and risks that can affect our business, see “Disclosures Regarding Forward-Looking
Statements” and Item 1A. Risk Factors in this Annual Report on Form 10-K.
Refining & Marketing
Refineries
We currently own and operate seven refineries in the Gulf Coast and Midwest regions of the United States with
an aggregate crude oil refining capacity of 1,817 mbpcd. During 2016, our refineries processed 1,699 mbpd of
crude oil and 151 mbpd of other charge and blendstocks. During 2015, our refineries processed 1,711 mbpd of
crude oil and 177 mbpd of other charge and blendstocks. The table below sets forth the location, crude oil
refining capacity, tank storage capacity and number of tanks for each of our refineries as of December 31, 2016.
Refinery
Garyville, Louisiana
Galveston Bay, Texas City, Texas
Catlettsburg, Kentucky
Robinson, Illinois
Detroit, Michigan
Canton, Ohio
Texas City, Texas
Total
Crude Oil Refining
Capacity (mbpcd)(a)
Tank Storage
Capacity
(million barrels)
Number
of Tanks
543
459
273
231
132
93
86
1,817
16.9
16.2
5.2
6.0
6.7
2.9
3.9
57.8
83
157
120
92
87
75
56
670
(a) Refining throughput can exceed crude oil capacity due to the processing of other charge and blendstocks in addition to crude oil and the
timing of planned turnaround and major maintenance activity.
15
Our refineries include crude oil atmospheric and vacuum distillation, fluid catalytic cracking, hydrocracking,
catalytic reforming, coking, desulfurization and sulfur recovery units. The refineries process a wide variety of
condensate, light and heavy crude oils purchased from various domestic and foreign suppliers. We produce
numerous refined products, ranging from transportation fuels, such as reformulated gasolines, blend-grade
gasolines intended for blending with ethanol and ULSD fuel, to heavy fuel oil and asphalt. Additionally, we
manufacture aromatics, propane, propylene and sulfur. See the Refined Product Marketing section for further
information about the products we produce.
Our refineries are integrated with each other via pipelines,
terminals and barges to maximize operating
efficiency. The transportation links that connect our refineries allow the movement of intermediate products
between refineries to optimize operations, produce higher margin products and efficiently utilize our processing
capacity. For example, naphtha may be moved from Texas City to Robinson where excess reforming capacity is
available. Also, shipping intermediate products between facilities during partial refinery shutdowns allows us to
utilize processing capacity that is not directly affected by the shutdown work.
Garyville, Louisiana Refinery. Our Garyville, Louisiana refinery is located along the Mississippi River in
southeastern Louisiana between New Orleans, Louisiana and Baton Rouge, Louisiana. The Garyville refinery is
configured to process a wide variety of crude oils into gasoline, distillates, fuel-grade coke, asphalt, propane,
polymer-grade propylene, heavy fuel oil, dry gas, slurry and sulfur. The refinery has access to the export market
and multiple options to sell refined products. A major expansion project was completed in 2009 that increased
Garyville’s crude oil refining capacity, making it one of the largest refineries in the U.S. Our Garyville refinery
has earned designation as an OSHA VPP Star site.
Galveston Bay, Texas City, Texas Refinery. Our Galveston Bay refinery, which we acquired on February 1, 2013,
is located on the Texas Gulf Coast approximately 30 miles southeast of Houston, Texas. The refinery can process
a wide variety of crude oils into gasoline, distillates, aromatics, heavy fuel oil, refinery-grade propylene, fuel-
grade coke, dry gas and sulfur. The refinery has access to the export market and multiple options to sell refined
products. Our cogeneration facility, which supplies the Galveston Bay refinery, currently has 1,055 megawatts of
electrical production capacity and can produce 4.3 million pounds of steam per hour. Approximately 46 percent
of the power generated in 2016 was used at the refinery, with the remaining electricity being sold into the
electricity grid.
Catlettsburg, Kentucky Refinery. Our Catlettsburg, Kentucky refinery is located in northeastern Kentucky on the
western bank of the Big Sandy River, near the confluence with the Ohio River. The Catlettsburg refinery
processes sweet and sour crude oils into gasoline, distillates, asphalt, aromatics, refinery-grade propylene and
propane. In the second quarter of 2015, we completed construction of a condensate splitter at our Catlettsburg
refinery, which increased our capacity to process condensate from the Utica shale region.
Robinson, Illinois Refinery. Our Robinson, Illinois refinery is located in southeastern Illinois. The Robinson
refinery processes sweet and sour crude oils into gasoline, distillates, propane, anode-grade coke, aromatics, fuel-
grade coke and slurry. The Robinson refinery has earned designation as an OSHA VPP Star site.
Detroit, Michigan Refinery. Our Detroit, Michigan refinery is located in southwest Detroit. It is the only
petroleum refinery currently operating in Michigan. The Detroit refinery processes sweet and heavy sour crude
oils into gasoline, distillates, asphalt, fuel-grade coke, chemical-grade propylene, propane, slurry and sulfur. Our
Detroit refinery earned designation as a OSHA VPP Star site in 2010. In the fourth quarter of 2012, we
completed a heavy oil upgrading and expansion project that enabled the refinery to process up to an additional 80
mbpd of heavy sour crude oils, including Canadian crude oils.
Canton, Ohio Refinery. Our Canton, Ohio refinery is located approximately 60 miles south of Cleveland, Ohio.
The Canton refinery processes sweet and sour crude oils, including production from the nearby Utica Shale, into
gasoline, distillates, asphalt, roofing flux, propane, refinery-grade propylene and slurry. In December 2014, we
completed construction of a condensate splitter at our Canton refinery, which increased our capacity to process
condensate from the Utica shale region.
16
Texas City, Texas Refinery. Our Texas City, Texas refinery is located on the Texas Gulf Coast adjacent to our
Galveston Bay refinery, approximately 30 miles southeast of Houston, Texas. The refinery processes light sweet
crude oils into gasoline, chemical-grade propylene, propane, aromatics, dry gas and slurry. Our Texas City
refinery earned designation as an OSHA VPP Star site in 2012.
As of December 31, 2016, our refineries had 22 rail loading racks and 28 truck loading racks and four of our
refineries had a total of seven owned and 11 non-owned docks. Total throughput in 2016 was 91 mbpd for the
refinery loading racks and 928 mbpd for the refinery docks.
Planned maintenance activities, or turnarounds, requiring temporary shutdown of certain refinery operating units,
are periodically performed at each refinery. See Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations for additional detail.
Refined Product Yields
The following table sets forth our refinery production by product group for each of the last three years.
Refined Product Yields (mbpd)
2016
2015
2014
Gasoline
Distillates
Propane
Feedstocks and special products
Heavy fuel oil
Asphalt
Total
Crude Oil Supply
900
617
35
241
32
58
913
603
36
281
31
55
869
580
35
276
25
54
1,883
1,919
1,839
We obtain the crude oil we refine through negotiated term contracts and purchases or exchanges on the spot
market. Our term contracts generally have market-related pricing provisions. The following table provides
information on our sources of crude oil for each of the last three years. The crude oil sourced outside of North
America was acquired from various foreign national oil companies, production companies and trading
companies.
Sources of Crude Oil Refined (mbpd)
2016
2015
2014
United States
Canada
Middle East and other international
Total
986
326
387
1,699
1,138
244
329
1,711
1,120
223
279
1,622
Our refineries receive crude oil and other feedstocks and distribute our refined products through a variety of
channels, including pipelines, trucks, railcars, ships and barges.
Renewable Fuels
We currently own a biofuel production facility in Cincinnati, Ohio that produces biodiesel, glycerin and other
by-products. The capacity of the plant is approximately 60 million gallons per year.
17
We hold interests in ethanol production facilities in Albion, Michigan; Clymers, Indiana and Greenville, Ohio.
These plants have a combined ethanol production capacity of 275 million gallons per year (18 mbpd) and are
managed by a co-owner.
Refined Product Marketing
We believe we are one of the largest wholesale suppliers of gasoline and distillates to resellers and consumers
within our 26-state market area. Independent retailers, wholesale customers, our Marathon brand jobbers and
Speedway brand convenience stores, airlines, transportation companies and utilities comprise the core of our
customer base. In addition, we sell gasoline, distillates and asphalt for export, primarily out of our Garyville and
Galveston Bay refineries. The following table sets forth our refined product sales destined for export by product
group for the past three years.
Refined Product Sales Destined for Export (mbpd)
2016
2015
2014
Gasoline
Distillates
Asphalt
Total
91
199
6
296
101
214
4
319
79
191
5
275
The following table sets forth, as a percentage of total refined product sales volume, the sales of refined products
to our different customer types for the past three years.
Refined Product Sales by Customer Type
2016
2015
2014
Private-brand marketers, commercial and industrial customers, including spot
market
Marathon-branded independent entrepreneurs
Speedway® convenience stores
69%
14%
17%
69%
14%
17%
73%
15%
12%
18
The following table sets forth the approximate number of retail outlets by state where independent entrepreneurs
maintain Marathon-branded retail outlets, as of December 31, 2016.
State
Alabama
Florida
Georgia
Illinois
Indiana
Kentucky
Louisiana
Maryland
Michigan
Minnesota
Mississippi
North Carolina
Ohio
Pennsylvania
South Carolina
Tennessee
Virginia
West Virginia
Wisconsin
Total
Approximate Number of
Marathon® Retail Outlets
227
606
281
292
640
583
2
1
761
47
79
220
859
66
101
404
121
117
48
5,455
The following table sets forth our refined product sales volumes by product group for each of the last three years.
Refined Product Sales by Product Group (mbpd)
2016
2015
2014
Gasoline
Distillates
Propane
Feedstocks and special products
Heavy fuel oil
Asphalt
Total
1,219
1,241
1,116
676
35
231
35
63
667
36
258
30
57
623
34
268
28
56
2,259
2,289
2,125
Gasoline and Distillates. We sell gasoline, gasoline blendstocks and distillates (including No. 1 and No. 2 fuel
oils, jet fuel, kerosene and diesel fuel) to wholesale customers, Marathon-branded independent entrepreneurs and
our Speedway® convenience stores and on the spot market. In addition, we sell diesel fuel and gasoline for export
to international customers. We sold 50 percent of our gasoline sales volumes and 87 percent of our distillates
sales volumes on a wholesale or spot market basis in 2016. The demand for gasoline and distillates is seasonal in
many of our markets, with demand typically at its highest levels during the summer months.
19
We have blended ethanol into gasoline for more than 25 years and began expanding our blending program in
2007, in part due to federal regulations that require us to use specified volumes of renewable fuels. Ethanol
volumes sold in blended gasoline were 84 mbpd in 2016, 85 mbpd in 2015 and 78 mbpd in 2014. We sell
reformulated gasoline, which is also blended with ethanol, in 12 states in our marketing area. We also sell
biodiesel-blended diesel fuel in 18 states in our marketing area. The future expansion or contraction of our
ethanol and biodiesel blending programs will be driven by market economics and government regulations.
Propane. We produce propane at most of our refineries. Propane is primarily used for home heating and cooking,
as a feedstock within the petrochemical industry, for grain drying and as a fuel for trucks and other vehicles. Our
propane sales are typically split evenly between the home heating market and petrochemical consumers.
Feedstocks and Petrochemicals. We are a producer and marketer of feedstocks and petrochemicals. Product
availability varies by refinery and includes platformate, alkylate, FCC unit gas, naptha, dry gas, propylene,
raffinate, butane, benzene, xylene, molten sulfur, cumene and toluene. We market these products domestically to
customers in the chemical, agricultural and fuel-blending industries. In addition, we produce fuel-grade coke at
our Garyville, Detroit and Galveston Bay refineries, which is used for power generation and in miscellaneous
industrial applications, and anode-grade coke at our Robinson refinery, which is used to make carbon anodes for
the aluminum smelting industry. Our feedstocks and petrochemical sales decreased to 231 mbpd in 2016 from
258 mbpd in 2015 and decreased in 2015 from 268 mbpd in 2014. The decrease in 2016 was primarily due to
more feedstocks used in production versus selling them on the spot market. The decrease in 2015 was primarily
due to higher turnaround activity in 2014 resulting in more available feedstocks, more feedstocks used in
production versus selling them on the spot market and market conditions in 2015.
Heavy Fuel Oil. We produce and market heavy residual fuel oil or related components, including slurry, at all of
our refineries. Heavy residual fuel oil is primarily used in the utility and ship bunkering (fuel) industries, though
there are other more specialized uses of the product.
Asphalt. We have refinery-based asphalt production capacity of up to 102 mbpcd, which includes asphalt
cements, polymer-modified asphalt, emulsified asphalt, industrial asphalts and roofing flux. We have a broad
customer base, including asphalt-paving contractors, government entities (states, counties, cities and townships)
and asphalt roofing shingle manufacturers. We sell asphalt in the domestic and export wholesale markets via rail,
barge and vessel.
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Terminals
As of December 31, 2016, we owned and operated 61 light product and 18 asphalt terminals. Our light product
and asphalt terminals averaged 1,429 mbpd and 31 mbpd of throughput in 2016, respectively. In addition, we
distribute refined products through one leased light product terminal, two light product terminals in which we
have partial ownership interests but do not operate and approximately 121 third-party light product and two third-
party asphalt terminals in our market area. We have offered 62 of these light product terminals, which include
virtually all of our owned and operated light product terminals as well as the one leased terminal and the two
partially-owned terminals, to MPLX and expect this dropdown transaction to be completed in the first quarter of
2017. The following table sets forth additional details about our owned and operated terminals at December 31,
2016.
Owned and Operated Terminals
Light Product Terminals:
Number of
Terminals
Tank Storage
Capacity
(million barrels)
Number
of Tanks
Number of
Loading
Lanes
Alabama
Florida
Georgia
Illinois
Indiana
Kentucky
Louisiana
Michigan
North Carolina
Ohio
Pennsylvania
South Carolina
Tennessee
West Virginia
Wisconsin
Subtotal light product terminals
Asphalt Terminals:
Florida
Illinois
Indiana
Kentucky
Louisiana
Michigan
Ohio
Pennsylvania
Tennessee
Subtotal asphalt terminals
Total owned and operated terminals
0.4
3.0
0.9
1.2
2.9
2.3
0.1
2.2
1.3
3.8
0.3
0.3
1.0
0.1
0.2
19
85
39
44
76
69
9
93
54
148
13
9
43
9
9
4
22
9
14
17
25
2
26
13
32
2
3
12
2
4
20.0
719
187
0.2
0.1
0.4
0.5
0.1
-
2.0
0.5
0.5
4.3
24.3
4
34
23
57
11
2
69
16
44
260
979
3
6
6
14
2
8
13
8
8
68
255
2
4
4
4
6
6
1
8
4
13
1
1
4
2
1
61
1
2
2
4
1
1
4
1
2
18
79
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Transportation – Truck and Rail
As of December 31, 2016, we owned 163 transport trucks and 180 trailers with an aggregate capacity of
1.6 million gallons for the movement of refined products and crude oil. In addition, we had 2,059 leased and 15
owned railcars of various sizes and capacities for movement and storage of refined products. The following table
sets forth additional details about our railcars.
Class of Equipment
General service tank cars
High pressure tank cars
Open-top hoppers
Speedway
Number of Railcars
Leased
Total
Owned
-
-
15
15
781
984
294
781
984
309
2,059
2,074
Capacity per Railcar
20,000-30,000 gallons
33,500 gallons
4,000 cubic feet
Our Speedway segment sells gasoline, diesel and merchandise through convenience stores that it owns and
operates under the Speedway brand. Speedway convenience stores offer a wide variety of merchandise, including
prepared foods, beverages and non-food items. Speedway’s Speedy Rewards® loyalty program has been a highly
successful loyalty program since its inception in 2004, with a consistently growing base which averaged more
than 5.7 million active members in 2016. Due to Speedway’s ability to capture and analyze member-specific
transactional data, Speedway is able to offer the Speedy Rewards® members discounts and promotions specific to
their buying behavior. We believe Speedy Rewards® is a key reason customers choose Speedway over
competitors and it continues to drive significant value for both Speedway and our Speedy Rewards® members.
The demand for gasoline is seasonal, with the highest demand usually occurring during the summer driving
season. Margins from the sale of merchandise tend to be less volatile than margins from the retail sale of gasoline
and diesel fuel. Merchandise margin as a percent of total gross margin for Speedway increased in 2016, primarily
due to lower light product margins during the year. The following table sets forth Speedway merchandise
statistics for the past three years.
Speedway Merchandise Statistics
Merchandise sales (in millions)
Merchandise gross margin (in millions)
Merchandise as a percent of total gross margin
2016
2015
2014
$ 5,007
$ 4,879
$ 3,611
1,435
1,368
56%
54%
975
57%
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As of December 31, 2016, Speedway had 2,733 convenience stores in 21 states. The following table sets forth the
number of convenience stores by state owned by our Speedway segment as of December 31, 2016.
State
Connecticut
Delaware
Florida
Georgia
Illinois
Indiana
Kentucky
Massachusetts
Michigan
New Hampshire
New Jersey
New York
North Carolina
Ohio
Pennsylvania
Rhode Island
South Carolina
Tennessee
Virginia
West Virginia
Wisconsin
Total
Number of
Convenience Stores(a)
1
4
241
1
115
309
147
114
303
12
72
238
278
488
113
20
52
38
62
61
64
2,733
(a)
Includes stores with commercial fueling lanes.
Speedway also owns a 29 percent interest in PFJ Southeast LLC (“PFJ Southeast”), which is a joint venture
between Speedway and Pilot with 123 travel center locations primarily in the Southeast United States as of
December 31, 2016.
As of December 31, 2016, Speedway owned 90 transport trucks and 83 trailers for the movement of gasoline and
distillate.
Midstream
Following the MarkWest Merger, we changed the name of our Pipeline Transportation segment to the Midstream
segment to reflect its expanded business activities. The Midstream segment includes the operations of MPLX and
certain other related operations.
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MPLX
MPLX is a diversified, growth-oriented publicly traded master limited partnership formed by us to own, operate,
develop and acquire midstream energy infrastructure assets. On December 4, 2015, MPLX merged with
MarkWest, whereby MarkWest became a wholly-owned subsidiary of MPLX. As of December 31, 2016, our
ownership interest in MPLX was 25.5 percent, including our two percent general partner interest. This ownership
percentage reflects the conversion of the MPLX Class B Units in July 2017 at 1.09 to 1.00.
As of December 31, 2016, MPLX assets, through its combination with MarkWest, included approximately 7,500
MMcf/d of natural gas processing capacity and 500 mbpd of NGL fractionation capacity and more than 5,600
miles of gas gathering and NGL pipelines.
MPLX assets as of December 31, 2016 also included 100 percent ownership of common carrier pipeline systems
through Marathon Pipe Line LLC (“MPL”) and Ohio River Pipe Line LLC (“ORPL”), and a one million barrel
butane storage cavern in West Virginia. MPLX, through MPL and ORPL, owned or leased and operated 1,008
miles of common carrier crude oil lines and 1,958 miles of common carrier products lines located in nine states
and five tank farms in Illinois and Indiana with available storage capacity of approximately five million barrels
that is committed to MPC. In 2016, third parties generated 16 percent of the crude oil and refined product
shipments on MPLX’s common carrier pipelines, excluding volumes shipped by MPC under joint tariffs with
third parties. These common carrier pipelines transported the volumes shown in the MPLX Pipeline Throughput
information in the Midstream Operating Statistics table below for each of the last three years.
As of December 31, 2016, MPLX’s marine transportation operations included 18 owned towboats, as well as 204
owned and 18 leased barges that transport refined products and crude oil on the Ohio, Mississippi and Illinois
rivers and their tributaries and inter-coastal waterways. The following table sets forth additional details about
MPLX’s barges and towboats.
Class of Equipment
Inland tank barges:(a)
Less than 25,000 barrels
25,000 barrels and over
Total
Inland towboats:
Less than 2,000 horsepower
2,000 horsepower and over
Total
(a) All of our barges are double-hulled.
Number
in Class
Capacity
(thousand barrels)
963
4,631
5,594
64
158
222
2
16
18
MPC-Retained Midstream Assets and Investments
We have ownership interests in several crude oil and products pipeline systems and pipeline companies which we
retained at the formation of MPLX. We have offered certain of these assets to MPLX in a dropdown transaction
we expect to be completed in the first quarter of 2017. MPC consolidated volumes transported through our
common carrier pipelines, which include MPLX’s pipelines and our undivided joint interests, are shown in the
MPC Consolidated Pipeline Throughput information in the following table for each of the last three years.
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The following table shows operating statistics for our Midstream segment.
Midstream Operating Statistics
2016
2015
2014
MPC Consolidated Pipeline Throughput (mbpd)
Crude oil pipelines
Refined products pipelines
Total
MPLX Pipeline Throughput (mbpd) (included in volumes above)(a)(b)
Crude oil pipelines
Refined products pipelines
Total
Gathering system throughput (MMcf/d)(c)
Natural gas processed (MMcf/d)(c)
C2 (ethane) + NGLs fractionated (mbpd)(c)
1,402
909
2,311
1,088
908
1,996
3,275
5,761
335
1,277
914
2,191
1,061
914
1,975
3,075
5,468
307
1,241
878
2,119
1,041
878
1,919
-
-
-
(a) MPLX predecessor volumes reported in MPLX’s filings include our undivided joint interest crude oil pipeline systems for periods prior
to MPLX’s initial public offering, which were not contributed to MPLX. The undivided joint interest volumes are not included above.
(b) Volumes represent 100 percent of the throughput through these pipelines.
(c) Beginning December 4, 2015, which was the effective date of the MarkWest Merger.
As of December 31, 2016, we have indirect ownership interests in two ocean vessel joint ventures with Crowley
through our investment in Crowley Coastal Partners. These joint ventures operate and charter four Jones Act
product tankers, most of which are leased to MPC, and own and operate three 750 Series ATB vessels that are
leased to MPC. The following table sets forth additional details about our product tankers and ATB vessels.
Class of Equipment
Jones Act product tankers(a)
750 Series ATB vessels(b)
Number
in Class
Capacity
(thousand barrels)
4
3
1,320
990
(a) Represents ownership through our indirect noncontrolling interest in Crowley Ocean Partners.
(b) Represents ownership through our indirect noncontrolling interest in Crowley Blue Water Partners.
The locations and detailed information about our midstream assets are included under Item 2. Properties and are
incorporated herein by reference.
Competition, Market Conditions and Seasonality
The downstream petroleum business is highly competitive, particularly with regard to accessing crude oil and
other feedstock supply and the marketing of refined products. We compete with a large number of other
companies to acquire crude oil for refinery processing and in the distribution and marketing of a full array of
petroleum products. Based upon the “The Oil & Gas Journal 2016 Worldwide Refinery Survey,” we ranked third
among U.S. petroleum companies on the basis of U.S. crude oil refining capacity as of December 31, 2016.
We compete in four distinct markets for the sale of refined products – wholesale, spot, branded and retail
distribution. We believe we compete with about 50 companies in the sale of refined products to wholesale
marketing customers, including private-brand marketers and large commercial and industrial consumers; about
100 companies in the sale of refined products in the spot market; 12 refiners or marketers in the supply of refined
25
products to refiner-branded independent entrepreneurs; and approximately 850 retailers in the retail sale of
refined products. In addition, we compete with producers and marketers in other industries that supply alternative
forms of energy and fuels to satisfy the requirements of our industrial, commercial and retail consumers. We do
not produce any of the crude oil we refine.
We also face strong competition for sales of retail gasoline, diesel fuel and merchandise. Our competitors include
service stations and convenience stores operated by fully integrated major oil companies and their independent
entrepreneurs and other well-recognized national or regional convenience stores and travel centers, often selling
gasoline, diesel fuel and merchandise at competitive prices. Non-traditional retailers, such as supermarkets, club
stores and mass merchants, have affected the convenience store industry with their entrance into sales of retail
gasoline and diesel fuel. Energy Analysts International, Inc. estimated such retailers had approximately
15 percent of the U.S. gasoline market in mid-2016.
Our Midstream operations face competition for natural gas gathering, crude oil transportation and in obtaining
natural gas supplies for our processing and related services; in obtaining unprocessed NGLs for gathering and
fractionation; and in marketing our products and services. Competition for natural gas supplies is based primarily
on the location of gas gathering facilities and gas processing plants, operating efficiency and reliability and the
ability to obtain a satisfactory price for products recovered. Competitive factors affecting our fractionation
services include availability of capacity, proximity to supply and industry marketing centers and cost efficiency
and reliability of service. Competition for customers to purchase our natural gas and NGLs is based primarily on
price, delivery capabilities, flexibility and maintenance of high-quality customer relationships. In addition,
certain of our Midstream operations are highly regulated, which affects the rates that our common carrier
pipelines can charge for transportation services and the return we obtain from such pipelines.
Market conditions in the oil and gas industry are cyclical and subject to global economic and political events and
new and changing governmental regulations. Our operating results are affected by price changes in crude oil,
natural gas and refined products, as well as changes in competitive conditions in the markets we serve. Price
differentials between sweet and sour crude oils, WTI and LLS crude oils and other market structure differentials
also affect our operating results.
Demand for gasoline, diesel fuel and asphalt is higher during the spring and summer months than during the
winter months in most of our markets, primarily due to seasonal increases in highway traffic and construction. As
a result, the operating results for each of our segments for the first and fourth quarters may be lower than for
those in the second and third quarters of each calendar year.
Our Midstream segment can be affected by seasonal fluctuations in the demand for natural gas and NGLs and the
related fluctuations in commodity prices caused by various factors such as changes in transportation and travel
patterns and variations in weather patterns from year to year. In the northeast region, we could be particularly
impacted by seasonality as the majority of its revenues are generated by NGL sales. However, we manage the
seasonality impact through the execution of our marketing strategy. We have access to up to 50 million gallons
of propane storage capacity in the northeast region provided by an arrangement with a third-party which provides
us with flexibility to manage the seasonality impact. Overall, our exposure to the seasonal fluctuations in the
commodity markets is declining due to our growth in fee-based business.
Environmental Matters
Our management is responsible for ensuring that our operating organizations maintain environmental compliance
systems that support and foster our compliance with applicable laws and regulations, and for reviewing our
overall environmental performance. We also have a Corporate Emergency Response Team that oversees our
response to any major environmental or other emergency incident involving us or any of our facilities.
We believe it is likely that the scientific and political attention to issues concerning the extent and causes of
climate change will continue, with the potential for further regulations that could affect our operations. Currently,
26
legislative and regulatory measures to address greenhouse gases are in various phases of review, discussion or
implementation. The cost to comply with these laws and regulations cannot be estimated at this time, but could
be significant. For additional
information, see Item 1A. Risk Factors. We estimate and publicly report
greenhouse gas emissions from our operations and products. Additionally, we continuously strive to improve
operational and energy efficiencies through resource and energy conservation where practicable.
Our operations are subject to numerous other laws and regulations relating to the protection of the environment.
Such laws and regulations include, among others, the Clean Air Act (“CAA”) with respect to air emissions, the
Clean Water Act (“CWA”) with respect to water discharges, the Resource Conservation and Recovery Act
(“RCRA”) with respect to solid and hazardous waste treatment, storage and disposal, the Comprehensive
Environmental Response, Compensation, and Liability Act
to releases and
remediation of hazardous substances and the Oil Pollution Act of 1990 (“OPA-90”) with respect to oil pollution
and response. In addition, many states where we operate have similar laws. New laws are being enacted and
regulations are being adopted on a continuing basis, and the costs of compliance with such new laws and
regulations are very difficult to estimate until finalized.
(“CERCLA”) with respect
For a discussion of environmental capital expenditures and costs of compliance for air, water, solid waste and
remediation, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations-Environmental Matters and Compliance Costs.
Air
We are subject to many requirements in connection with air emissions from our operations. Internationally and
domestically, emphasis has been placed on reducing greenhouse gas emissions. The U.S. pledge in 2009, as part
of the Copenhagen Accord, to reduce greenhouse gas emissions 17 percent below 2005 levels by 2020 remains in
effect and was reaffirmed in President Obama’s 2013 Climate Action Plan. Although the United States signed the
2015 Paris Agreement on Climate Change, it does not legally require parties to the Agreement to reduce
greenhouse gas emissions, and the United States’ future activities in response to the Paris Agreement are
unknown. In November 2016, the Obama administration released its strategy for “deep de-carbonization,” which
aims to reduce greenhouse gas emissions to 80 percent below 2005 levels by 2050. The U.S. climate change
strategy and implementation of that strategy through legislation and regulation may change under President
Trump’s administration; therefore, the impact to our industry and operations due to greenhouse gas regulation is
unknown at this time.
In 2009, the EPA issued an “endangerment finding” that greenhouse gas emissions contribute to air pollution that
endangers public health and welfare. Related to the endangerment finding, in April 2010, the EPA finalized a
greenhouse gas emission standard for mobile sources (cars and other light duty vehicles). The endangerment
finding, the mobile source standard and the EPA’s determination that greenhouse gases are subject to regulation
under the Clean Air Act resulted in permitting of greenhouse gas emissions at stationary sources, but as a result
of the EPA’s “tailoring rule,” permit applicability was limited to larger sources such as refineries. Legal
challenges were filed against these EPA actions. In June 2014, the United States Supreme Court ruled that the
Clean Air Act Prevention of Significant Deterioration program for new and modified major stationary sources is
not triggered by greenhouse gas emissions alone. The United States Supreme Court did, however, uphold the
requirement for new or modified stationary sources that will also emit a criteria pollutant to control greenhouse
gas emissions through Best Available Control Technology. Implementing Best Available Control Technology
may result in increased costs to our operations. A few MPC projects may trigger greenhouse gas permitting
requirements but any additional capital spending will likely not be significant.
The EPA has finalized Source Performance Standards for greenhouse gas emissions for new and existing electric
utility generating units. These standards could impact electric and natural gas rates for all our operations. Legal
challenges have been filed by several states and by industry groups seeking to overturn the final rules. In
February 2016, the United States Supreme Court stayed implementation of the standards for existing utility
27
generating units (also known as the Clean Power Plan) until complete disposition of the litigation. Congress may
again also consider legislation on greenhouse gas emissions or a carbon tax. In the absence of federal legislation
or regulation of greenhouse gas emissions, states may become more active in regulating greenhouse gas
emissions. These measures include state actions to develop statewide or regional programs to impose emission
reductions. These measures may also include low carbon fuel standards, such as the California program. In
addition, private parties have sued utilities and other emitters of greenhouse gas emissions, but such suits have
been largely unsuccessful. We have not been named in any of those lawsuits. Private parties have also sued
federal and certain state governmental entities seeking additional greenhouse gas emission reductions beyond
those currently being undertaken. In sum, requiring reductions in greenhouse gas emissions could result in
increased costs to (i) operate and maintain our facilities, (ii) install new emission controls at our facilities and
(iii) administer and manage any greenhouse gas emissions programs, including acquiring emission credits or
allotments. These requirements may also significantly affect MPC’s refinery operations and may have an indirect
effect on our business, financial condition and results of operations. The extent and magnitude of the impact from
greenhouse gas regulation or legislation cannot be reasonably estimated due to the uncertainty regarding the
additional measures and how they will be implemented.
In 2013, the Obama administration made changes to the social cost of carbon (“SCC”) estimate. The SCC was
first issued in 2010. The SCC is to be used by the EPA and other federal agencies in regulatory cost-benefit
analyses to take into account alleged broad economic consequences associated with changes to emissions of
greenhouse gases. In 2013, the Obama administration significantly increased the estimate to $36 per ton. In
response to the regulated community and Congress’ critiques of how the SCC was developed, the Office of
Management and Budget provided an opportunity to comment on the SCC, but ultimately did not make any
significant revisions. In August 2016, the White House Council on Environmental Quality issued its final
guidance to federal agencies on assessing a project’s impact to climate change under the National Environmental
Policy Act, by requiring an estimation of the greenhouse gas emissions from the project, including using the SCC
when analyzing costs and benefits of a project. While the impact of a higher SCC in future regulations is not
known at this time, it may result in increased costs to our operations. The EPA has also used an estimate of the
social cost of methane in its regulatory impact analysis to justify regulating methane as a pollutant for new and
modified sources in the oil and natural gas sector.
In 2015, the EPA finalized a revision to the National Ambient Air Quality Standards (“NAAQS”) for ozone. The
EPA lowered the primary ozone NAAQS from 75 ppb to 70 ppb. This revision initiates a multi-year process in
which nonattainment designations will be made based on more recent ozone measurements that includes data
from 2016. States will then propose and adopt, as necessary, new rules reducing emissions to meet the new
standard. Currently, the EPA is in the process of implementing the 75 ppb ozone standard that the EPA had
promulgated in March 2008. The impact of a stricter standard cannot be accurately estimated due to the present
uncertainty regarding area nonattainment designations and the additional requirements that states may impose.
Additionally, legal petitions challenging the revised ozone standard have been filed, adding uncertainty to the
revised standard.
On September 29, 2015, the EPA signed the final regulations revising existing refinery air emissions standards.
The revised regulations were published in the Federal Register on December 1, 2015. The revised rule requires
additional controls, lower emission standards and ambient air monitoring. We do not anticipate that MPC’s costs
to comply with the revised regulations will be material to our results of operations or cash flows.
Water
We maintain numerous discharge permits as required under the National Pollutant Discharge Elimination System
program of the CWA and have implemented systems to oversee our compliance with these permits. In addition,
we are regulated under OPA-90, which among other things, requires the owner or operator of a tank vessel or a
facility to maintain an emergency plan to respond to releases of oil or hazardous substances. OPA-90 also
requires the responsible company to pay resulting removal costs and damages and provides for civil penalties and
28
criminal sanctions for violations of its provisions. We operate tank vessels and facilities from which spills of oil
and hazardous substances could occur. We have implemented emergency oil response plans for all of our
components and facilities covered by OPA-90 and we have established Spill Prevention, Control and
Countermeasures plans for all facilities subject to such requirements.
Additionally, OPA-90 requires that new tank vessels entering or operating in U.S. waters be double-hulled and
that existing tank vessels that are not double-hulled be retrofitted or removed from U.S. service. All barges used
for river transport of our raw materials and refined products meet the double-hulled requirements of OPA-90.
Some coastal states in which we operate have passed state laws similar to OPA-90, but with expanded liability
provisions,
include provisions for cargo owner responsibility as well as ship owner and operator
responsibility.
that
In June 2015, the EPA and the United States Army Corps of Engineers finalized significant changes to the
definition of the term “waters of the United States” (“WOTUS”) used in numerous programs under the CWA.
This final rulemaking is referred to as the Clean Water Rule. The Clean Water Rule has been challenged in
multiple federal courts by many states, trade groups, and other interested parties, and in October 2015, a United
States Court of Appeals issued a nationwide stay of the Clean Water Rule. The Clean Water Rule, as written,
expands permitting, planning and reporting obligations and may extend the timing to secure permits for pipeline
and fixed asset construction and maintenance activities. The Clean Water Rule does contain new language
intended to address concerns that the proposed rule included storm water conveyances and storage structures as
WOTUS, and we continue to review how that new language will apply under specific circumstances. Court
challenges of the Clean Water Rule will continue through 2017.
In 2015, the EPA issued its intent to review the CWA categorical effluent limitation guidelines (“ELG”) for the
petroleum refining sector. During 2016, the EPA prepared a draft information request (“ICR”) requesting
significant wastewater and treatment process details and may perform sampling of effluent at one or more of our
refineries. The ICR is expected to issue in 2017. The EPA has indicated they believe there have been significant
changes in the characteristics of wastewaters generated within refining operations that warrant the review.
Specific targets for the review are the impacts of processing heavier crude oils and the transfer of air pollutants to
wastewater when air pollution abatement devices are in use. A similar project, initiated in 2007 for steam power
generation with similar attributes, resulted in a significant change in the treatment requirements for coal-fired
power plants. The refining sector ELG review has the potential to result in a similar impact. We are actively
engaged in the planning process for the 2017 information request and effluent sampling campaign and engaged
with The American Petroleum Institute and the American Fuel & Petrochemical Manufacturers associations on
this matter. The typical life-cycle for an ELG review from the intent to review to issuance of a final rule that
would require upgrades is seven years. The impact of an ELG review cannot be accurately estimated at this time.
Solid Waste
We continue to seek methods to minimize the generation of hazardous wastes in our operations. RCRA
establishes standards for the management of solid and hazardous wastes. Besides affecting waste disposal
practices, RCRA also addresses the environmental effects of certain past waste disposal operations, the recycling
of wastes and the regulation of USTs containing regulated substances. We have ongoing RCRA treatment and
disposal operations at two of our facilities and primarily utilize offsite third-party treatment and disposal
facilities. Ongoing RCRA-related costs, however, are not expected to be material to our results of operations or
cash flows.
Remediation
We own or operate, or have owned or operated, certain convenience stores and other locations where, during the
normal course of operations, releases of refined products from USTs have occurred. Federal and state laws
require that contamination caused by such releases at these sites be assessed and remediated to meet applicable
29
standards. The enforcement of the UST regulations under RCRA has been delegated to the states, which
administer their own UST programs. Our obligation to remediate such contamination varies, depending on the
extent of the releases and the stringency of the applicable state laws and regulations. A portion of these
remediation costs may be recoverable from the appropriate state UST reimbursement funds once the applicable
deductibles have been satisfied. We also have ongoing remediation projects at a number of our current and
former refinery, terminal and pipeline locations. Penalties or other sanctions may be imposed for noncompliance.
Claims under CERCLA and similar state acts have been raised with respect to the clean-up of various waste
disposal and other sites. CERCLA is intended to facilitate the clean-up of hazardous substances without regard to
fault. Potentially responsible parties for each site include present and former owners and operators of,
transporters to and generators of the hazardous substances at the site. Liability is strict and can be joint and
several. Because of various factors including the difficulty of identifying the responsible parties for any particular
site, the complexity of determining the relative liability among them, the uncertainty as to the most desirable
remediation techniques and the amount of damages and clean-up costs and the time period during which such
costs may be incurred, we are unable to reasonably estimate our ultimate cost of compliance with CERCLA;
however, we do not believe such costs will be material to our business, financial condition, results of operations
or cash flows.
Mileage Standards, Renewable Fuels and Other Fuels Requirements
In 2007, the U.S. Congress passed the Energy Independence and Security Act (“EISA”), which, among other
things, set a target of 35 miles per gallon for the combined fleet of cars and light trucks in the United States by
model year 2020, and contains the RFS2. In August 2012, the EPA and the National Highway Traffic Safety
Administration (“NHTSA”) jointly adopted regulations that establish average industry fleet fuel economy
standards for passenger cars and light trucks of up to 41 miles per gallon by model year 2021 and average fleet
fuel economy standards of up to 49.7 miles per gallon by model year 2025. The standards from 2022 to 2025 are
the government’s current estimate but will require further rulemaking by the NHTSA. The EPA in the fourth
quarter of 2016 determined that its proposed targets for GHG reduction are achievable and did not adjust its 2022
to 2025 estimated standards. New or alternative transportation fuels such as compressed natural gas could also
pose a competitive threat to our operations.
The RFS2 required the total volume of renewable transportation fuels sold or introduced annually in the U.S. to
reach 22.25 billion gallons in 2016, 24.0 billion gallons in 2017 and increase to 36.0 billion gallons by 2022.
Within the total volume of renewable fuel, EISA established an advanced biofuel volume of 7.25 billion gallons
in 2016, 9.0 billion gallons in 2017 and increasing to 21.0 billion gallons in 2022. Subsets within the advanced
biofuel volume include biomass-based diesel, which was set as at least 1.0 billion gallons in 2014 through 2022
(to be determined by the EPA through rulemaking), and cellulosic biofuel, which was set at 4.25 billion gallons
in 2016, 5.5 billion gallons in 2017 and increasing to 16.0 billion gallons in 2022.
On November 30, 2015, the EPA finalized the renewable fuel standards for the years of 2014, 2015 and 2016 as
well as the biomass-based diesel standard for 2017. Because the EPA missed the statutory deadlines for
establishing the standards for 2014 and 2015, the EPA used its waiver authority under EISA to set the standards
using actual consumption data obtained from EPA’s tracking system, EMTS. The EPA’s use of its general
waiver authority to reduce the statutory volumes has been challenged in court. A court decision vacating the
2014-2016 renewable fuel standards on the basis that the EPA unreasonably exercised its general waiver
authority could increase our cost of compliance with the Renewable Fuels Standards and be detrimental to the
RIN market.
On November 23, 2016, the EPA finalized the renewable fuel standards for the year 2017 and the biomass based
diesel standard for 2018. The EPA used its cellulosic waiver authority to reduce the standards from the statutory
amounts to the following: 19.28 billion gallons total renewable fuel; 4.28 billion gallons advanced biofuel; and
311 million gallons cellulosic ethanol. The EPA increased the biomass based diesel standard for 2018 to
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2.0 billion gallons. In the near term, the RFS2 will be satisfied primarily with ethanol blended into gasoline.
Vehicle, regulatory and infrastructure constraints limit the blending of significantly more than 10 percent ethanol
into gasoline (“E10”). The volumes for 2016 and 2017 result in the ethanol content of gasoline exceeding the E10
blendwall, which will require obligated parties to either sell E15 or FlexFuel at levels that exceed historical levels
or retire carryover RINs that had been generated in prior years. On October 13, 2016, the EPA issued a partial
waver decision under the CAA to allow for an increase in the amount of ethanol permitted to be blended into
gasoline from E10 to E15 for 2007 and newer light-duty motor vehicles. On January 21, 2011, the EPA issued a
second waver for the use of E15 in vehicles model year 2001-2006. There are numerous issues, including state
and federal regulatory issues, which need to be addressed before E15 can be marketed for use in traditional
gasoline engines. Additionally, there are infrastructure compatibility issues and vehicle manufacturer warranty
concerns related to E15 usage. Neither E15 nor FlexFuel has been readily accepted by the consumer.
With potentially uncertain supplies, the advanced biofuels programs may present specific challenges in that we
may have to enter into arrangements with other parties or purchase credits from the EPA to meet our obligations
to use advanced biofuels, including biomass-based diesel and cellulosic biofuel.
We made investments in infrastructure capable of expanding biodiesel blending capability to help comply with
the biodiesel RFS2 requirement by buying and blending biodiesel into our refined diesel product, and by buying
needed biodiesel RINs in the EPA-created biodiesel RINs market. On April 1, 2014, we purchased a facility in
Cincinnati, Ohio, which currently produces biodiesel, glycerin and other by-products. The capacity of the plant is
approximately 60 million gallons per year. As a producer of biodiesel, we now generate RINs, thereby reducing
our reliance on the external RIN market.
On November 10, 2016, the EPA proposed to deny petitions requesting that the point of obligation for the RFS
be moved to the terminal rack. The EPA is accepting comments on its proposed denial. Should the EPA decide
that its proposal was incorrect and move the point of obligation, we could be subject to increased costs and
compliance uncertainties
The RFS2 has required, and may in the future continue to require, additional capital expenditures or expenses by
us to accommodate increased renewable fuels use. We may experience a decrease in demand for refined
petroleum products due to an increase in combined fleet mileage or due to refined petroleum products being
replaced by renewable fuels.
On March 3, 2014, the EPA signed the final Tier 3 fuel standards. The final Tier 3 fuel standards require, among
other things, a lower annual average sulfur level in gasoline to no more than 10 ppm beginning in calendar year
2017. In addition, gasoline refiners and importers may not exceed a maximum per-gallon sulfur standard of 80
ppm while retailers may not exceed a maximum per-gallon sulfur standard of 95 ppm. We anticipate that we will
spend approximately $650 million between 2014 and 2019 to comply with these standards, which includes
estimated capital expenditures of approximately $200 million in 2017.
Trademarks, Patents and Licenses
Our Marathon trademark is material to the conduct of our refining and marketing operations, and our Speedway
trademark is material to the conduct of our retail marketing operations. We currently hold a number of U.S. and
foreign patents and have various pending patent applications. Although in the aggregate our patents and licenses
are important to us, we do not regard any single patent or license or group of related patents or licenses as critical
or essential to our business as a whole. In general, we depend on our technological capabilities and the
application of know-how rather than patents and licenses in the conduct of our operations.
Employees
We had approximately 44,460 regular full-time and part-time employees as of December 31, 2016, which
includes approximately 32,880 employees of Speedway.
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Certain hourly employees at our Canton, Catlettsburg, Galveston Bay and Texas City refineries are represented
by the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers
Union under labor agreements that are due to expire in 2019. The International Brotherhood of Teamsters
represents certain hourly employees at our Detroit refinery under a labor agreement that is also scheduled to
expire in 2019. In addition, they represent certain hourly employees at Speedway under agreements that cover
certain outlets in New York and New Jersey that expire on March 14, 2019 and June 30, 2019, respectively.
Executive and Corporate Officers of the Registrant
The executive and corporate officers of MPC are as follows:
Name
January 31, 2017 Position with MPC
Age as of
Gary R. Heminger
Molly R. Benson(a)
Raymond L. Brooks
Suzanne Gagle
Timothy T. Griffith
John R. Haley(a)
Thomas Kaczynski
Thomas M. Kelley
Anthony R. Kenney
Rodney P. Nichols
Randy S. Nickerson
C. Michael Palmer
John J. Quaid
David R. Sauber(a)
John S. Swearingen
Donald C. Templin
Donald W. Wehrly(a)
David L. Whikehart(a)
(a) Corporate officer.
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56
51
47
60
55
57
63
64
55
63
45
53
57
53
57
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Chairman, President and Chief Executive Officer
Vice President, Corporate Secretary and Chief Compliance Officer
Senior Vice President, Refining
Vice President, General Counsel
Senior Vice President and Chief Financial Officer
Vice President, Tax
Vice President, Finance and Treasurer
Senior Vice President, Marketing
President, Speedway LLC
Senior Vice President, Human Resources and Administrative Services
Executive Vice President, Corporate Strategy
Senior Vice President, Supply, Distribution and Planning
Vice President and Controller
Vice President, Human Resources and Labor Relations
Senior Vice President, Transportation and Logistics
Executive Vice President
Vice President and Chief Information Officer
Vice President, Environment, Safety and Corporate Affairs
Mr. Heminger was appointed president and chief executive officer effective June 30, 2011, and to his current
position in 2016. Prior to this appointment, Mr. Heminger was president of Marathon Petroleum Company LP
(formerly known as Marathon Ashland Petroleum LLC and Marathon Petroleum Company LLC), currently a
wholly-owned subsidiary of MPC and prior to the Spinoff, a wholly-owned subsidiary of Marathon Oil. He
assumed responsibility as president of Marathon Petroleum Company LP in September 2001.
Ms. Benson was appointed vice president, corporate secretary and chief compliance officer effective March 1,
2016. Prior to this appointment, Ms. Benson was assistant general counsel, corporate and finance beginning in
April 2012, group counsel, corporate and finance beginning in 2011, group counsel, North American production
for Marathon Oil Company beginning in 2010 and senior attorney, downstream business beginning in 2006.
Mr. Brooks was appointed senior vice president, Refining effective March 1, 2016. Prior to this appointment,
Mr. Brooks was general manager, Galveston Bay refinery beginning in February 2013, general manager,
Robinson refinery beginning in 2010 and general manager, St. Paul Park, Minnesota refinery (no longer owned
by MPC) beginning in 2006.
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Ms. Gagle was appointed vice president and general counsel effective March 1, 2016. Prior to this appointment,
Ms. Gagle was assistant general counsel, litigation and Human Resources beginning in April 2011, senior group
counsel, downstream operations beginning in 2010 and group counsel, litigation, beginning in 2003.
Mr. Griffith was appointed senior vice president and chief financial officer effective March 3, 2015. Prior to this
appointment, Mr. Griffith served as vice president, Finance and Investor Relations, and treasurer beginning in
January 2014. He was vice president of Finance and treasurer beginning in August 2011. Previously, Mr. Griffith
was vice president Investor Relations and treasurer of Smurfit-Stone Container Corporation, a packaging
manufacturer, in St. Louis, Missouri, from 2008 to 2011.
Mr. Haley was appointed vice president, Tax effective June 1, 2013. Prior to this appointment, Mr. Haley served
as director of Tax beginning in July 2011 and as a tax manager for Marathon Oil Company beginning in 1996.
Mr. Kaczynski was appointed vice president, Finance and treasurer effective August 31, 2015. Prior to this
appointment, Mr. Kaczynski was vice president and treasurer of Goodyear Tire and Rubber Company beginning
in 2014. Previously, he served as vice president, Investor Relations, of Goodyear Tire and Rubber Company
beginning in 2013, vice president and corporate treasurer of Affinia Group Inc. beginning in 2005, and director
of affiliate finance and of capital markets and bank relations of Visteon Corporation beginning in 2000.
Mr. Kelley was appointed senior vice president, Marketing effective June 30, 2011. Prior to this appointment,
Mr. Kelley served in the same capacity for Marathon Petroleum Company LP beginning in January 2010.
Previously, he served as director of Crude Supply and Logistics for Marathon Petroleum Company LP beginning
in January 2008, and as a Brand Marketing manager for eight years prior to that.
Mr. Kenney has served as president of Speedway LLC since August 2005. Prior to this appointment, Mr. Kenney
served as vice president, Business Development of Marathon Ashland Petroleum LLC beginning in 2001.
Mr. Nichols was appointed senior vice president, Human Resources and Administrative Services effective
March 1, 2012. Prior to this appointment, Mr. Nichols served as vice president, Human Resources and
Administrative Services beginning on June 30, 2011 and served in the same capacity for Marathon Petroleum
Company LP beginning in April 1998.
Mr. Nickerson was appointed executive vice president, Corporate Strategy effective December 4, 2015 at the
time of the MarkWest Merger. Prior to this appointment, Mr. Nickerson served as chief commercial officer of
MarkWest beginning in 2006 and senior vice president, Corporate Development beginning in 2003.
Mr. Palmer was appointed senior vice president, Supply, Distribution and Planning effective June 30, 2011. Prior
to this appointment, Mr. Palmer served as vice president, Supply, Distribution and Planning for Marathon
Petroleum Company LP beginning in June 2010. He served as Crude Supply and Logistics director for Marathon
Petroleum Company LP beginning in February 2010, and as senior vice president, Oil Sands Operations and
Commercial Activities for Marathon Oil Canada Corporation beginning in 2007.
Mr. Quaid was appointed vice president and controller effective June 23, 2014. Prior to this appointment,
Mr. Quaid was vice president of Iron Ore at United States Steel Corporation (“U. S. Steel”), an integrated steel
producer, beginning in January 2014. Previously, Mr. Quaid served in various leadership positions at U. S. Steel
since February 2002, including vice president and treasurer beginning in August 2011, controller, North
American Flat-Rolled Operations beginning in July 2010 and assistant corporate controller beginning in 2008.
Mr. Sauber was appointed vice president, Human Resources and Labor Relations effective February 1, 2017.
Prior to this appointment, Mr. Sauber served as vice president, Human Resources Policy, Benefits and Services
of Shell Oil Company beginning in 2013. Previously, Mr. Sauber served in various leadership positions at Shell
Oil Company since 2000 including regional Human Resources manager for U.S. manufacturing in 2009.
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Mr. Swearingen was appointed senior vice president, Transportation and Logistics effective March 3, 2015. Prior
to this appointment, Mr. Swearingen served as vice president of Health, Environmental, Safety & Security
beginning June 30, 2011. Previously, he was president of Marathon Pipe Line LLC beginning in 2009 and the
Illinois Refining Division manager beginning in November 2001.
Mr. Templin was appointed executive vice president effective January 1, 2016. Prior to this appointment,
Mr. Templin served as executive vice president, Supply, Transportation and Marketing beginning March 3, 2015
and senior vice president and chief financial officer beginning on June 30, 2011. Previously, he was a partner at
PricewaterhouseCoopers LLP, an audit, tax and advisory services provider, with various audit and management
responsibilities beginning in 1996.
Mr. Wehrly was appointed vice president and chief information officer effective June 30, 2011. Prior to this
appointment, Mr. Wehrly was the manager of Information Technology Services for Marathon Petroleum
Company LP beginning in 2003.
Mr. Whikehart was appointed vice president, Environmental, Safety and Corporate Affairs effective February 29,
2016. Prior to this appointment, Mr. Whikehart served as vice president, Corporate Planning, Government &
Public Affairs effective January 1, 2016 and director, Product Supply and Optimization beginning in March
2011. Previously, Mr. Whikehart served as director, Climate Change and Carbon Management beginning in 2010
and director, Business Development beginning in 2008.
Available Information
information about MPC,
General
Committee, Compensation Committee and Corporate Governance and Nominating Committee, can be found at
http://ir.marathonpetroleum.com. In addition, our Code of Business Conduct and Code of Ethics for Senior
Financial Officers are also available in this same location.
including Corporate Governance Principles and Charters for the Audit
MPC uses its website, www.marathonpetroleum.com, as a channel for routine distribution of important
information, including news releases, analyst presentations, financial information and market data. Our Annual
Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as any
amendments and exhibits to those reports, are available free of charge through our website as soon as reasonably
practicable after the reports are filed or furnished with the SEC. These documents are also available in hard copy,
free of charge, by contacting our Investor Relations office. In addition, our website allows investors and other
interested persons to sign up to automatically receive email alerts when we post news releases and financial
information on our website. Information contained on our website is not incorporated into this Annual Report on
Form 10-K or other securities filings.
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Item 1A. Risk Factors
You should carefully consider each of the following risks and all of the other information contained in this
Annual Report on Form 10-K in evaluating us and our common stock. Some of these risks relate principally to
our business and the industry in which we operate, while others relate to the ownership of our common stock.
Our business, financial condition, results of operations or cash flows could be materially and adversely affected
by any of these risks, and, as a result, the trading price of our common stock could decline.
Risks Relating to our Business
A substantial or extended decline in refining and marketing gross margins would reduce our operating
results and cash flows and could materially and adversely impact our future rate of growth, the carrying
value of our assets and our ability to execute share repurchases and continue the payment of our base
dividend.
Our operating results, cash flows, future rate of growth, the carrying value of our assets and our ability to execute
share repurchases and continue the payment of our base dividend are highly dependent on the margins we realize
on our refined products. The measure of the difference between market prices for refined products and crude oil,
or crack spread, is commonly used by the industry as a proxy for refining and marketing gross margins.
Historically, refining and marketing gross margins have been volatile, and we believe they will continue to be
volatile. Our margins from the sale of gasoline and other refined products are influenced by a number of
conditions, including the price of crude oil. We do not produce crude oil and must purchase all of the crude oil
we refine. The price of crude oil and the price at which we can sell our refined products may fluctuate
independently due to a variety of regional and global market conditions. Any overall change in crack spreads will
impact our refining and marketing gross margins. Many of the factors influencing a change in crack spreads and
refining and marketing gross margins are beyond our control. These factors include:
• worldwide and domestic supplies of and demand for crude oil and refined products;
•
•
•
•
•
•
•
•
•
•
•
•
the cost of crude oil and other feedstocks to be manufactured into refined products;
the prices realized for refined products;
utilization rates of refineries;
natural gas and electricity supply costs incurred by refineries;
the ability of the members of OPEC to agree to and maintain production controls;
political instability or armed conflict in oil and natural gas producing regions;
local weather conditions;
seasonality of demand in our marketing area due to increased highway traffic in the spring and summer
months;
natural disasters such as hurricanes and tornadoes;
the price and availability of alternative and competing forms of energy;
domestic and foreign governmental regulations and taxes; and
local, regional, national and worldwide economic conditions.
Some of these factors can vary by region and may change quickly, adding to market volatility, while others may
have longer-term effects. The longer-term effects of these and other factors on refining and marketing gross
margins are uncertain. We purchase our crude oil and other refinery feedstocks weeks before we refine them and
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sell the refined products. Price level changes during the period between purchasing feedstocks and selling the
refined products from these feedstocks could have a significant effect on our financial results. We also purchase
refined products manufactured by others for resale to our customers. Price changes during the periods between
purchasing and reselling those refined products also could have a material adverse effect on our business,
financial condition, results of operations and cash flows.
Lower refining and marketing gross margins may reduce the amount of refined products we produce, which may
reduce our revenues, income from operations and cash flows. Significant reductions in refining and marketing
gross margins could require us to reduce our capital expenditures, impair the carrying value of our assets (such as
property, plant and equipment, inventory or goodwill), decrease or eliminate our share repurchase activity and
our base dividend.
Our operations are subject to business interruptions and casualty losses. Failure to manage risks
associated with business interruptions could adversely impact our operations, financial condition, results
of operations and cash flows.
Our operations are subject
to business interruptions due to scheduled refinery turnarounds, unplanned
maintenance or unplanned events such as explosions, fires, refinery or pipeline releases or other incidents, power
outages, severe weather, labor disputes, or other natural or man-made disasters, such as acts of terrorism. For
example, pipelines provide a nearly-exclusive form of transportation of crude oil to, or refined products from,
some of our refineries. In such instances, a prolonged interruption in service of such a pipeline could materially
and adversely affect the operations, profitability and cash flows of the impacted refinery.
Explosions, fires, refinery or pipeline releases or other incidents involving our assets or operations could result in
serious personal injury or loss of human life, significant damage to property and equipment, environmental
pollution, impairment of operations and substantial losses to us. Damages resulting from an incident involving
any of our assets or operations may result in our being named as a defendant in one or more lawsuits asserting
potentially substantial claims or in our being assessed potentially substantial fines by governmental authorities.
We do not insure against all potential losses, and, therefore, our business, financial condition, results of
operations and cash flows could be adversely affected by unexpected liabilities and increased costs.
We maintain insurance coverage in amounts we believe to be prudent against many, but not all, potential
liabilities arising from operating hazards. Uninsured liabilities arising from operating hazards, including but not
limited to, explosions, fires, refinery or pipeline releases or other incidents involving our assets or operations,
could reduce the funds available to us for capital and investment spending and could have a material adverse
effect on our business, financial condition, results of operations and cash flows. Historically, we also have
maintained insurance coverage for physical damage and resulting business interruption to our major facilities,
with significant self-insured retentions. In the future, we may not be able to maintain insurance of the types and
amounts we desire at reasonable rates.
We rely on the performance of our information technology systems, the failure of which could have an
adverse effect on our business, financial condition, results of operations and cash flows.
We are heavily dependent on our information technology systems and network infrastructure and maintain and
rely upon certain critical information systems for the effective operation of our business. These information
systems involve data network and telecommunications, Internet access and website functionality, and various
computer hardware equipment and software applications, including those that are critical to the safe operation of
our business. These systems and infrastructure are subject to damage or interruption from a number of potential
sources including natural disasters, software viruses or other malware, power failures, cyber-attacks and other
events. We also face various other cyber-security threats, including threats to gain unauthorized access to
sensitive information or to render data or systems unusable. To protect against such attempts of unauthorized
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access or attack, we have implemented infrastructure protection technologies and disaster recovery plans. There
can be no guarantee such plans, to the extent they are in place, will be effective.
The retail market is diverse and highly competitive, and very aggressive competition could adversely
impact our business.
We face strong competition in the market for the sale of retail gasoline, diesel fuel and merchandise. Our
competitors include outlets owned or operated by fully integrated major oil companies or their dealers or jobbers,
and other well-recognized national or regional retail outlets, often selling gasoline or merchandise at very
competitive prices. Several non-traditional retailers such as supermarkets, club stores and mass merchants are in
the retail business. These non-traditional gasoline retailers have obtained a significant share of the transportation
fuels market and we expect their market share to grow. Because of their diversity, integration of operations,
experienced management and greater financial resources, these companies may be better able to withstand
volatile market conditions or levels of low or no profitability in the retail segment of the market. In addition,
these retailers may use promotional pricing or discounts, both at the pump and in the store, to encourage in-store
merchandise sales. These activities by our competitors could pressure us to offer similar discounts, adversely
affecting our profit margins. Additionally, the loss of market share by our convenience stores to these and other
retailers relating to either gasoline or merchandise could have a material adverse effect on our business, financial
condition, results of operations and cash flows.
The development, availability and marketing of alternative and competing fuels in the retail market could
adversely impact our business. We compete with other industries that provide alternative means to satisfy the
energy and fuel needs of our consumers. Increased competition from these alternatives as a result of
governmental regulations, technological advances and consumer demand could have an impact on pricing and
demand for our products and our profitability.
We are subject to interruptions of supply and increased costs as a result of our reliance on third-party
transportation of crude oil and refined products.
We utilize the services of third parties to transport crude oil and refined products to and from our refineries. In
addition to our own operational risks discussed above, we could experience interruptions of supply or increases
in costs to deliver refined products to market if the ability of the pipelines, railways or vessels to transport crude
oil or refined products is disrupted because of weather events, accidents, governmental regulations or third-party
actions. A prolonged disruption of the ability of the pipelines, railways or vessels to transport crude oil or refined
products to or from one or more of our refineries could have a material adverse effect on our business, financial
condition, results of operations and cash flows.
We may incur losses to our business as a result of our forward-contract activities and derivative
transactions.
We currently use commodity derivative instruments, and we expect to enter into these types of transactions in the
future. A failure of a futures commission merchant or counterparty to perform would affect these transactions. To
the extent the instruments we utilize to manage these exposures are not effective, we may incur losses related to
the ineffective portion of the derivative transaction or costs related to moving the derivative positions to another
futures commission merchant or counterparty once a failure has occurred.
We have significant debt obligations; therefore, our business, financial condition, results of operations and
cash flows could be harmed by a deterioration of our credit profile, a decrease in debt capacity or
unsecured commercial credit available to us, or by factors adversely affecting credit markets generally.
At December 31, 2016, our total debt obligations for borrowed money and capital lease obligations were
including $4.9 billion of obligations of MPLX. We may incur substantial additional debt
$11.1 billion,
obligations in the future.
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Our indebtedness may impose various restrictions and covenants on us that could have material adverse
consequences, including:
•
•
•
•
•
increasing our vulnerability to changing economic, regulatory and industry conditions;
limiting our ability to compete and our flexibility in planning for, or reacting to, changes in our
business and the industry;
limiting our ability to pay dividends to our shareholders;
limiting our ability to borrow additional funds; and
requiring us to dedicate a substantial portion of our cash flow from operations to payments on our debt,
thereby reducing funds available for working capital, capital expenditures, acquisitions, share
repurchases, dividends and other purposes.
A decrease in our debt or commercial credit capacity, including unsecured credit extended by third-party
suppliers, or a deterioration in our credit profile could increase our costs of borrowing money and/or limit our
access to the capital markets and commercial credit, which could materially and adversely affect our business,
financial condition, results of operations and cash flows.
We have a trade receivables securitization facility that provides liquidity of up to $750 million depending on the
amount of eligible domestic trade accounts receivables. In periods of lower prices, we may not have sufficient
eligible accounts receivables to support full availability of this facility.
Historic or current operations could subject us to significant legal liability or restrict our ability to
operate.
We currently are defending litigation and anticipate we will be required to defend new litigation in the future.
Our operations, including those of MPLX, and those of our predecessors could expose us to litigation and civil
claims by private plaintiffs for alleged damages related to contamination of the environment or personal injuries
caused by releases of hazardous substances from our facilities, products liability, consumer credit or privacy
laws, product pricing or antitrust laws or any other laws or regulations that apply to our operations. While an
adverse outcome in most litigation matters would not be expected to be material to us, in class-action litigation,
large classes of plaintiffs may allege damages relating to extended periods of time or other alleged facts and
circumstances that could increase the amount of potential damages. Attorneys general and other government
officials may pursue litigation in which they seek to recover civil damages from companies on behalf of a state or
its citizens for a variety of claims, including violation of consumer protection and product pricing laws or natural
resources damages. We are defending litigation of that type and anticipate that we will be required to defend new
litigation of that type in the future. If we are not able to successfully defend such litigation, it may result in
liability to our company that could materially and adversely affect our business, financial condition, results of
operations and cash flows. We do not have insurance covering all of these potential liabilities. In addition to
substantial liability, plaintiffs in litigation may also seek injunctive relief which, if imposed, could have a
material adverse effect on our future business, financial condition, results of operations and cash flows.
A portion of our workforce is unionized, and we may face labor disruptions that could materially and
adversely affect our business, financial condition, results of operations and cash flows.
Approximately 36 percent of our refining employees are covered by collective bargaining agreements. Certain
hourly employees at our Canton, Catlettsburg, Galveston Bay and Texas City refineries are represented by the
United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers Union
under labor agreements that are due to expire in 2019. The International Brotherhood of Teamsters represents
certain hourly employees at our Detroit refinery under a labor agreement that is also scheduled to expire in 2019.
In addition, they represent certain hourly employees at Speedway under agreements that cover certain outlets in
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New York and New Jersey that expire on March 14, 2019 and June 30, 2019, respectively. These contracts may
be renewed at an increased cost to us. In addition, we have experienced, or may experience, work stoppages as a
result of labor disagreements. Any prolonged work stoppages disrupting operations could have a material adverse
effect on our business, financial condition, results of operations and cash flows.
One of our subsidiaries acts as the general partner of a publicly traded master limited partnership,
MPLX, which may involve a greater exposure to certain legal liabilities than existed under our historic
business operations.
One of our subsidiaries acts as the general partner of MPLX, a publicly traded master limited partnership. Our
control of the general partner of MPLX may increase the possibility of claims of breach of fiduciary duties
including claims of conflicts of interest related to MPLX. Any liability resulting from such claims could have a
material adverse effect on our future business, financial condition, results of operations and cash flows.
If foreign investment in us or MPLX exceeds certain levels, MPLX could be prohibited from operating
inland river vessels, which could materially and adversely affect our business, financial condition, results
of operations and cash flows.
The Shipping Act of 1916 and Merchant Marine Act of 1920, which we refer to collectively as the Maritime
Laws, generally require that vessels engaged in U.S. coastwise trade be owned by U.S. citizens. Among other
requirements to establish citizenship, entities that own such vessels must be owned at least 75 percent by U.S.
citizens. If we fail to maintain compliance with the Maritime Laws, MPLX would be prohibited from operating
vessels in the U.S. inland waters. Such a prohibition could materially and adversely affect our business, financial
condition, results of operations and cash flows.
We are subject to certain continuing contingent liabilities of Marathon Oil relating to taxes and other
matters and to potential liabilities pursuant to the tax sharing agreement and separation and distribution
agreement we entered into with Marathon Oil that could materially and adversely affect our business,
financial condition, results of operations and cash flows.
Although the Spinoff occurred in mid-2011, certain liabilities of Marathon Oil could become our obligations. For
example, under the Internal Revenue Code of 1986 (the “Code”) and related rules and regulations, each
corporation that was a member of the Marathon Oil consolidated tax reporting group during any taxable period or
portion of any taxable period ending on or before the effective time of the Spinoff is jointly and severally liable
for the federal income tax liability of the entire Marathon Oil consolidated tax reporting group for that taxable
period. In connection with the Spinoff, we entered into a tax sharing agreement with Marathon Oil that allocates
the responsibility for prior period taxes of the Marathon Oil consolidated tax reporting group between us and
Marathon Oil. However, if Marathon Oil is unable to pay any prior period taxes for which it is responsible, we
could be required to pay the entire amount of such taxes. Other provisions of federal law establish similar
liability for other matters, including laws governing tax-qualified pension plans as well as other contingent
liabilities.
Also pursuant to the tax sharing agreement, following the Spinoff we are responsible generally for all taxes
attributable to us or any of our subsidiaries, whether accruing before, on or after the Spinoff. We also agreed to
be responsible for, and indemnify Marathon Oil with respect to, all taxes arising as a result of the Spinoff (or
certain internal restructuring transactions) failing to qualify as transactions under Sections 368(a) and 355 of the
Code for U.S. federal income tax purposes to the extent such tax liability arises as a result of any breach of any
representation, warranty, covenant or other obligation by us or certain affiliates made in connection with the
issuance of the private letter ruling relating to the Spinoff or in the tax sharing agreement. In addition, we agreed
to indemnify Marathon Oil for specified tax-related liabilities associated with our 2005 acquisition of the
minority interest in our refining joint venture from Ashland Inc. Our indemnification obligations to Marathon Oil
and its subsidiaries, officers and directors are not limited or subject to any cap. If we are required to indemnify
39
Marathon Oil and its subsidiaries and their respective officers and directors under the tax sharing agreement, we
may be subject to substantial liabilities. At this time, we cannot precisely quantify the amount of these liabilities
that have been assumed pursuant to the tax sharing agreement, and there can be no assurances as to their final
amounts.
Also, in connection with the Spinoff, we entered into a separation and distribution agreement with Marathon Oil
that provides for, among other things, the principal corporate transactions that were required to affect the Spinoff,
certain conditions to the Spinoff and provisions governing the relationship between our company and Marathon
Oil with respect to and resulting from the Spinoff. Among other things, the separation and distribution agreement
provides for indemnification obligations designed to make us financially responsible for substantially all
liabilities that may exist relating to our downstream business activities, whether incurred prior to or after the
Spinoff, as well as certain obligations of Marathon Oil assumed by us. Our obligations to indemnify Marathon
Oil under the circumstances set forth in the separation and distribution agreement could subject us to substantial
liabilities. Marathon Oil also agreed to indemnify us for certain liabilities. However, third parties could seek to
hold us responsible for any of the liabilities retained by Marathon Oil, and there can be no assurance that the
indemnity from Marathon Oil will be sufficient to protect us against the full amount of such liabilities, that
Marathon Oil will be able to fully satisfy its indemnification obligations or that Marathon Oil’s insurers will
cover us for liabilities associated with occurrences prior to the Spinoff. Moreover, even if we ultimately succeed
in recovering from Marathon Oil or its insurers any amounts for which we are held liable, we may be temporarily
required to bear these losses ourselves. The tax liabilities and underlying liabilities in the event Marathon Oil is
unable to satisfy its indemnification obligations described in this paragraph could have a material adverse effect
on our business, financial condition, results of operation and cash flows.
We may not realize the growth opportunities and commercial synergies that are anticipated from the
MarkWest Merger.
The benefits that are expected to result from the MarkWest Merger will depend, in part, on MPLX’s ability to
realize the anticipated growth opportunities and commercial synergies as a result of the MarkWest Merger.
MPLX’s success in realizing these growth opportunities and commercial synergies, and the timing of this
realization, depends on the successful integration of MPLX and MarkWest. There is a significant degree of
difficulty and management distraction inherent
in the process of integrating an acquisition as sizable as
MarkWest. The process of integrating operations could cause an interruption of, or loss of momentum in, the
activities of MPLX and MarkWest. Members of our senior management may be required to devote considerable
amounts of time to this integration process, which will decrease the time they will have to manage our company,
maintain relationships with employees, customers or suppliers, attract new customers and develop new strategies.
If senior management is not able to effectively manage the integration process, or if any significant business
activities are interrupted as a result of the integration process, our business could suffer. There can be no
assurance that MPLX will successfully or cost-effectively integrate MarkWest. The failure to do so could have a
material adverse effect on our business, financial condition, and results of operations.
Even if MPLX is able to integrate MarkWest successfully, this integration may not result in the realization of the
full benefits of the growth opportunities and commercial synergies that we currently expect from this integration,
and we cannot guarantee that these benefits will be achieved within anticipated time frames or at all. For
example, MPLX may not be able to eliminate duplicative costs. Moreover, MPLX may incur substantial
expenses in connection with the integration of MarkWest. While it is anticipated that certain expenses will be
incurred to achieve commercial synergies, such expenses are difficult to estimate accurately, and may exceed
current estimates. Accordingly, the benefits from the MarkWest Merger may be offset by costs incurred to, or
delays in, integrating the businesses.
40
Significant acquisitions in the future will involve the integration of new assets or businesses and present
substantial risks that could adversely affect our business, financial conditions, results of operations and
cash flows.
Significant future transactions involving the addition of new assets or businesses will present potential risks,
which may include, among others:
•
Inaccurate assumptions about future synergies, revenues, capital expenditures and operating costs;
• An inability to successfully integrate assets or businesses we acquire;
• A decrease in our liquidity resulting from using a portion of our available cash or borrowing capacity
under our revolving credit agreement to finance transactions;
• A significant increase in our interest expense or financial leverage if we incur additional debt to finance
transactions;
• The assumption of unknown environmental and other liabilities, losses or costs for which we are not
indemnified or for which our indemnity is inadequate;
• The diversion of management’s attention from other business concerns; and
• The incurrence of other significant charges, such as impairment of goodwill or other intangible assets,
asset devaluation or restructuring charges.
A significant decrease or delay in oil and natural gas production in MPLX’s areas of operation, whether
due to sustained declines in oil, natural gas and NGL prices, natural declines in well production, or
otherwise, may adversely affect MPLX’s business, results of operations and financial condition, and could
reduce MPLX’s ability to make distributions to us.
A significant portion of MPLX’s operations are dependent upon production from oil and natural gas reserves and
wells, which will naturally decline over time, which means that MPLX’s cash flows associated with these wells
will also decline over time. To maintain or increase throughput levels and the utilization rate of MPLX’s
facilities, MPLX must continually obtain new oil, natural gas, NGL and refined product supplies, which depends
in part on the level of successful drilling activity near its facilities.
We have no control over the level of drilling activity in the areas of MPLX’s operations, the amount of reserves
associated with the wells or the rate at which production from a well will decline. In addition, we have no control
over producers or their production decisions, which are affected by, among other things, prevailing and projected
energy prices, drilling costs per Mcf or barrel, demand for hydrocarbons, operational challenges, access to
downstream markets,
the level of reserves, geological considerations, governmental regulations and the
availability and cost of capital. Because of these factors, even if new oil or natural gas reserves are discovered in
areas served by MPLX assets, producers may choose not to develop those reserves. If MPLX is not able to obtain
new supplies of oil or natural gas to replace the natural decline in volumes from existing wells, throughput on
MPLX pipelines and the utilization rates of MPLX facilities would decline, which could have a material adverse
effect on MPLX’s business, results of operations and financial condition and could reduce MPLX’s ability to
make distributions to us.
Decreases in energy prices can decrease drilling activity, production rates and investments by third parties in the
development of new oil and natural gas reserves. The prices for oil, natural gas and NGLs depend upon factors
beyond our control, including global and local demand, production levels, changes in interstate pipeline gas
quality specifications, imports and exports, seasonality and weather conditions, economic and political conditions
domestically and internationally and governmental regulations. Sustained periods of low prices could result in
producers also significantly curtailing or limiting their oil and gas drilling operations which could substantially
delay the production and delivery of volumes of oil, gas and NGLs to MPLX’s facilities and adversely affect
MPLX’s revenues and cash available for distribution to us. This impact may also be exacerbated due to the extent
41
of MPLX’s commodity-based contracts, which are more directly impacted by changes in gas and NGL prices
than its fee-based contracts due to frac spread exposure and may result in operating losses when natural gas
becomes more expensive on a Btu equivalent basis than NGL products. In addition, MPLX’s purchase and resale
of gas and NGLs in the ordinary course exposes MPLX to significant risk of volatility in gas or NGL prices due
to the potential difference in the time of the purchases and sales and the potential difference in the price
associated with each transaction, and direct exposure may also occur naturally as a result of MPLX’s production
processes. The significant fluctuation and decline in natural gas, NGL and oil prices currently occurring has
adversely impacted MPLX’s unit price, thereby increasing its distribution yield and cost of capital. Such impacts
could adversely impact MPLX’s ability to execute its long-term organic growth projects, satisfy obligations to its
customers and make distributions to unitholders at intended levels, and may also result in non-cash impairments
of
long-lived assets or goodwill or other-than-temporary non-cash impairments of our equity method
investments.
Our recently announced strategic actions designed to enhance shareholder value may not deliver the anticipated
benefits.
In January 2017, we announced updates to our previously announced strategic actions designed to enhance
shareholder value, including the significant acceleration of dropdowns of midstream assets into MPLX and the
expected exchange of our economic interests in the general partner, including incentive distribution rights, for
newly issued MPLX common units in conjunction with the completion of such dropdowns. We may not be able
to achieve the anticipated benefits of these actions as we may not be able to implement the announced strategic
actions due to: the inability to agree with the MPLX conflicts committee with respect to the value attributed to
assets identified for dropdown; the adequacy of MPLX’s capital and liquidity, including, but not limited to,
MPLX’s access to debt to fund the anticipated dropdowns on commercially reasonable terms; and the time, cost
and ability to obtain requisite approvals and regulatory clearances, including tax clearance. In addition, the
market price of our common stock could decline if securities or industry analysts or our investors disagree with
these strategic actions or the way we implement such actions. Accordingly, even if we are able to implement
some or all of the strategic actions successfully, there is no assurance that these actions will be reflected in the
market price of our stock to the extent currently anticipated by management.
Significant stockholders may attempt to effect changes at our company or acquire control over our company,
which could impact the pursuit of business strategies and adversely affect our results of operations and financial
condition.
Our stockholders may from time to time engage in proxy solicitations, advance stockholder proposals or
otherwise attempt to affect changes or acquire control over our company. Campaigns by stockholders to effect
changes at publicly traded companies are sometimes led by investors seeking to increase short-term stockholder
value through actions such as financial restructuring, increased debt, special dividends, stock repurchases or sales
of assets or the entire company. Responding to proxy contests and other actions by activist stockholders can be
costly and time-consuming and could divert the attention of our board of directors and senior management from
the management of our operations and the pursuit of our business strategies. As a result, stockholder campaigns
could adversely affect our results of operations and financial condition.
Risks Relating to Our Industry
Changes in environmental or other laws or regulations may reduce our refining and marketing gross
margin and may result in substantial capital expenditures and operating costs that could materially and
adversely affect our business, financial condition, results of operations and cash flows.
Various laws and regulations are expected to impose increasingly stringent and costly requirements on our
operations, which may reduce our refining and marketing gross margin. Laws and regulations expected to
become more stringent relate to the following:
•
the emission or discharge of materials into the environment,
42
•
•
•
•
•
•
solid and hazardous waste management,
pollution prevention,
greenhouse gas emissions,
characteristics and composition of gasoline and diesel fuels,
public and employee safety and health, and
facility security.
The specific impact of laws and regulations on us and our competitors may vary depending on a number of
factors, including the age and location of operating facilities, marketing areas, crude oil and feedstock sources
and production processes. We may be required to make expenditures to modify operations, install pollution
control equipment, perform site cleanups or curtail operations that could materially and adversely affect our
business, financial condition, results of operations and cash flows.
Because the issue of climate change continues to receive scientific and political attention, there is the potential
for further laws and regulations that could affect our operations. The U.S. pledge in 2009, as part of the
Copenhagen Accord, to reduce greenhouse gas emissions 17 percent below 2005 levels by 2020 remains in effect
and was reaffirmed in the President’s 2013 Climate Action Plan. The 2015 Paris UN Climate Change Conference
Agreement aims to hold the increase in the global average temperature to well below two degrees Celsius above
strategy for “deep
pre-industrial
de-carbonization,” which aims to reduce greenhouse gas emissions to 80 percent below 2005 levels by 2050. The
U.S. climate change strategy and implementation of that strategy through legislation and regulation may change
under the new administration; therefore, the impact to our industry and operations due to greenhouse gas
regulation is unknown at this time.
the Obama administration released its
In November 2016,
levels.
In October 2015,
the EPA finalized regulations to reduce carbon emissions from new, modified, and
reconstructed power plants (new source performance standards) and from existing power plants (existing source
performance standards; also known as the Clean Power Plan). Through the regulations, the EPA is requiring a
reduction in nationwide carbon emissions from the power generation sector by 32 percent below 2005 levels.
These standards could increase our electricity costs and potentially reduce the reliability of our electricity supply.
In February 2016, the U.S. Supreme Court stayed implementation of the Clean Power Plan until the legal
challenge filed by several states and industry could be heard by the courts.
The Obama administration developed the social cost of carbon (“SCC”), which is to be used by the EPA and
other federal agencies in regulatory cost-benefit analyses to take into account alleged broad economic
consequences associated with changes to emissions of greenhouse gases. The SCC was first issued in 2010. In
2013, the Obama administration significantly increased the estimate to $36 per ton. In response to the regulated
community and Congress’ critiques of how the SCC was developed, the Office of Management and Budget
(“OMB”) provided an opportunity to comment on the SCC. In July 2015, the OMB issued a response to
comments and a revised technical support document explaining adjustments to the SCC calculations.
Additionally, in August 2016, the White House Council on Environmental Quality issued its final guidance to
federal agencies on assessing a project’s impact to climate change under the National Environmental Policy Act
by estimating the greenhouse gas emissions from the project, including using the SCC when analyzing costs and
benefits of a project. While the impact of a higher SCC in future regulations is not known at this time, it may
result in increased costs to our operations.
An article on the social cost of methane has also been published and was used by the EPA in its regulatory
impact analysis of the proposed emission standards for new and modified sources in the oil and natural gas
sector. These regulations were proposed pursuant to President Obama’s Strategy to Reduce Methane Emissions
as part of the Administration’s efforts to reduce methane emissions from the oil and gas sector by up to
43
45 percent from 2012 levels by 2025. The finalization of these regulations could directly impact MPLX by
creating delays in the construction and installation of new facilities due to more stringent permitting
requirements, increasing costs to reduce GHG emissions or requiring aggregation of emissions from separate
facilities for permitting purposes. These regulations may also impact us by increasing the costs of domestic crude
supplies.
In the absence of federal legislation or regulation of greenhouse gas emissions, states may become more active in
regulating greenhouse gas emissions. These measures include state actions to develop statewide or regional
programs to impose emission reductions. These measures may also include low carbon fuel standards, such as the
California program. In addition, private party litigation is pending against federal and certain state governmental
entities seeking additional greenhouse gas emission reductions beyond those currently being undertaken. These
actions could result in increased costs to operate and maintain our facilities, capital expenditures to install new
emission controls and costs to administer any carbon trading or tax programs implemented. Although uncertain,
these developments could increase our costs, reduce the demand for the products we sell and create delays in our
obtaining air pollution permits for new or modified facilities.
In October 2015,
the EPA reduced the primary (health) ozone National Ambient Air Quality Standards
(“NAAQS”) to 70 ppb from the prior ozone level of 75 ppb. The EPA is expected to finalize new ozone
attainment and nonattainment designations by late 2017, using 2014-2016 air quality monitor data. The lower
primary ozone standard may not by attainable in some areas and could result in the cancellation or delay of
capital projects at our facilities or increased costs related to an increase in the production of low Reid vapor
pressure (RVP) gasoline.
The EISA establishes increases in fuel mileage standards and contains a second Renewable Fuel Standard
commonly referred to as RFS2. Increases in fuel mileage standards and the increased use of renewable fuels
(including ethanol and advanced biofuels) may reduce demand for refined products. Governmental regulations
encouraging the use of new or alternative fuels could also pose a competitive threat
to our operations.
Specifically, the RFS2 required the total volume of renewable transportation fuels sold or introduced annually in
the U.S. to reach 36.0 billion gallons by 2022. The RFS2 presents production and logistics challenges for both
the renewable fuels and petroleum refining industries, and may continue to require additional capital
expenditures or expenses by us to accommodate increased renewable fuels use. Gasoline consumption has been
lower than forecasted by the EPA, which has led to concerns that the renewable fuel volumes may not be met.
The 2017 renewable fuel standards were finalized and published on November 23, 2016. The final standards are
lower than the statutory requirements but nevertheless result in volumes that breach the ethanol “blendwall.” The
advanced biofuels program, a subset of the RFS2 requirements, creates uncertainties and presents challenges of
supply, and may require that we and other refiners and other obligated parties purchase credits from the EPA to
meet our obligations.
Tax incentives and other subsidies have also made renewable fuels more competitive with refined products than
they otherwise would have been, which may further reduce refined product margins. The tax incentives and
subsidies are causing uncertainties because they have expired and been reinstituted retroactively. The biodiesel
credit, for example, expired at the end of 2016 and there is uncertainty if it will be reinstituted.
On March 3, 2014, the EPA signed the final Tier 3 fuel standards. The final Tier 3 fuel standards require, among
other things, a lower annual average sulfur level in gasoline to no more than 10 parts ppm beginning in calendar
year 2017. In addition, gasoline refiners and importers may not exceed a maximum per-gallon sulfur standard of
80 ppm, while retailers may not exceed a maximum per-gallon sulfur standard of 95 ppm. We anticipate that we
will spend an estimated $650 million between 2014 and 2019 for capital expenditures necessary to comply with
these standards, which includes estimated capital expenditures of approximately $200 million in 2017.
Federal, state and local legislation and regulatory initiatives relating to hydraulic fracturing could delay or
impede producer’s gas production or result in reduced volumes available for MPLX to gather, process and
44
fractionate. MPLX does not conduct hydraulic fracturing operations, but it does provide gathering, processing
and fractionation services with respect to natural gas and natural gas liquids produced by its customers as a result
of such operations. If federal, state or local laws or regulations that significantly restrict hydraulic fracturing are
adopted, such legal requirements could make it more difficult to complete natural gas wells in shale formations
and increase producers’ costs of compliance.
Severe weather events may adversely affect our facilities and ongoing operations.
For a variety of reasons, natural and/or anthropogenic, some members of the scientific community believe that
climate changes could occur that could have significant physical effects, such as increased frequency and severity
of storms, droughts and floods and other climatic events; if any such effects were to occur, they could have an
adverse effect on our assets and operations.
Plans we may have to expand existing assets or construct new assets are subject to risks associated with
societal and political pressures and other forms of opposition to the future development, transportation
and use of carbon-based fuels. Such risks could adversely impact our business and ability to realize certain
growth strategies.
Our anticipated growth and planned expenditures are based upon the assumption that societal sentiment will
continue to enable and existing regulations will remain intact to allow for the future development, transportation
and use of carbon-based fuels. A portion of our growth strategy is dependent on our ability to expand existing
assets and to construct additional assets. However, policy decisions relating to the production, refining,
transportation and marketing of carbon-based fuels are subject to political pressures and the influence of
environmental and other special interest groups. The construction of new refinery processing units or crude oil or
refined products pipelines, or the extension or expansion of existing assets, involve numerous political and legal
uncertainties, many of which may cause significant delays or cost increases and most of which are beyond our
control. Delays or cost increases related to capital spending programs involving engineering, procurement and
construction of facilities (including improvements and repairs to our existing facilities) could adversely affect our
ability to achieve forecasted internal rates of return and operating results, thereby limiting our ability to grow and
generate cash flows.
Large capital projects can take many years to complete, and market conditions could deteriorate
significantly between the project approval date and the project startup date, negatively impacting project
returns. If we are unable to complete capital projects at their expected costs and in a timely manner, or if
the market conditions assumed in our project economics deteriorate, our business, financial condition,
results of operations and cash flows could be materially and adversely affected.
Delays or cost
increases related to capital spending programs involving engineering, procurement and
construction of facilities could materially adversely affect our ability to achieve forecasted internal rates of return
and operating results. Delays in making required changes or upgrades to our facilities could subject us to fines or
penalties as well as affect our ability to supply certain products we produce. Such delays or cost increases may
arise as a result of unpredictable factors, many of which are beyond our control, including:
•
•
•
•
•
denial of or delay in receiving requisite regulatory approvals and/or permits;
unplanned increases in the cost of construction materials or labor;
disruptions in transportation of components or construction materials;
adverse weather conditions, natural disasters or other events (such as equipment malfunctions,
explosions, fires or spills) affecting our facilities, or those of vendors or suppliers;
shortages of sufficiently skilled labor, or labor disagreements resulting in unplanned work stoppages;
• market-related increases in a project’s debt or equity financing costs; and
•
nonperformance by, or disputes with, vendors, suppliers, contractors or subcontractors.
45
Any one or more of these factors could have a significant impact on our ongoing capital projects. If we were
unable to make up the delays associated with such factors or to recover the related costs, or if market conditions
change, it could materially and adversely affect our business, financial condition, results of operations and cash
flows.
The availability of crude oil and increases in crude oil prices may reduce profitability and refining and
marketing gross margins.
The profitability of our operations depends largely on the difference between the cost of crude oil and other
feedstocks we refine and the selling prices we obtain for refined products. A portion of our crude oil is purchased
from various foreign national oil companies, producing companies and trading companies, including suppliers
from Canada, the Middle East and various other international locations. The market for crude oil and other
feedstocks is largely a world market. We are, therefore, subject to the attendant political, geographic and
economic risks of such a market. If one or more major supply sources were temporarily or permanently
eliminated, we believe adequate alternative supplies of crude oil would be available, but it is possible we would
be unable to find alternative sources of supply. If we are unable to obtain adequate crude oil volumes or are able
to obtain such volumes only at unfavorable prices, our operations, sales of refined products and refining and
marketing gross margins could be adversely affected, materially and adversely impacting our business, financial
condition, results of operations and cash flows.
Worldwide political and economic developments could materially and adversely impact our business,
financial condition, results of operations and cash flows.
In addition to impacting crude oil and other feedstock supplies, political and economic factors in global markets
could have a material adverse effect on us in other ways. Hostilities in the Middle East or the occurrence or threat
of future terrorist attacks could adversely affect the economies of the U.S. and other developed countries. A
lower level of economic activity could result in a decline in energy consumption, which could cause our revenues
and margins to decline and limit our future growth prospects. These risks could lead to increased volatility in
prices for refined products, NGLs and natural gas. Additionally, these risks could increase instability in the
financial and insurance markets and make it more difficult and/or costly for us to access capital and to obtain the
insurance coverage that we consider adequate. Additionally, tax policy, legislative or regulatory action and
commercial restrictions could reduce our operating profitability. For example, the U.S. government could prevent
or restrict exports of refined products, NGLs, natural gas or the conduct of business with certain foreign
countries.
Compliance with and changes in tax laws could materially and adversely impact our financial condition,
results of operations and cash flows.
We are subject to extensive tax liabilities, including federal and state income taxes and transactional taxes such
as excise, sales and use, payroll, franchise, withholding and property taxes. New tax laws and regulations and
changes in existing tax laws and regulations could result in increased expenditures by us for tax liabilities in the
future and could materially and adversely impact our financial condition, results of operations and cash flows.
For example, the U.S. House of Representatives Republican leadership released a tax reform Blueprint proposing
the replacement of the current corporate income tax with a destination-based cash flow tax. Because the value of
our crude oil imports exceed the value of our refined product exports, this proposal could have a material adverse
effect on our U.S. income tax liabilities. Additionally, many tax liabilities are subject to periodic audits by taxing
authorities, and such audits could subject us to interest and penalties.
Terrorist attacks aimed at our facilities or that impact our customers or the markets we serve could
adversely affect our business.
The U.S. government has issued warnings that energy assets in general, including the nation’s refining, pipeline
and terminal infrastructure, may be future targets of terrorist organizations. The threat of terrorist attacks has
46
subjected our operations to increased risks. Any future terrorist attacks on our facilities, those of our customers
and, in some cases, those of other pipelines, could have a material adverse effect on our business. Similarly, any
future terrorist attacks that severely disrupt the markets we serve could materially and adversely affect our results
of operations, financial position and cash flows.
Risks Relating to Ownership of Our Common Stock
Provisions in our corporate governance documents could operate to delay or prevent a change in control of
our company, dilute the voting power or reduce the value of our capital stock or affect its liquidity.
The existence of some provisions within our restated certificate of incorporation and amended and restated
bylaws could discourage, delay or prevent a change in control of us that a stockholder may consider favorable.
These include provisions:
•
•
•
•
•
•
•
•
•
•
providing that our board of directors fixes the number of members of the board;
providing for the division of our board of directors into three classes with staggered terms;
providing that only our board of directors may fill board vacancies;
limiting who may call special meetings of stockholders;
prohibiting stockholder action by written consent, thereby requiring stockholder action to be taken at a
meeting of the stockholders;
establishing advance notice requirements for nominations of candidates for election to our board of
directors or for proposing matters that can be acted on by stockholders at stockholder meetings;
establishing supermajority vote requirements for certain amendments to our restated certificate of
incorporation and stockholder proposals for amendments to our amended and restated bylaws;
providing that our directors may only be removed for cause;
authorizing a large number of shares of common stock that are not yet issued, which would allow our
board of directors to issue shares to persons friendly to current management, thereby protecting the
continuity of our management, or which could be used to dilute the stock ownership of persons seeking
to obtain control of us; and
authorizing the issuance of “blank check” preferred stock, which could be issued by our board of
directors to increase the number of outstanding shares and thwart a takeover attempt.
We believe these provisions protect our stockholders from coercive or otherwise unfair takeover tactics by
requiring potential acquirers to negotiate with our board of directors and by providing our board of directors time
to assess any acquisition proposal, and are not intended to make us immune from takeovers. However, these
provisions apply even if the offer may be considered beneficial by some stockholders and could delay or prevent
an acquisition.
Our restated certificate of incorporation also authorizes us to issue, without the approval of our stockholders, one
or more classes or series of preferred stock having such designation, powers, preferences and relative,
participating, optional and other special rights,
including preferences over our common stock respecting
dividends and distributions, as our board of directors generally may determine. The terms of one or more classes
or series of preferred stock could dilute the voting power or reduce the value of our common stock. For example,
we could grant holders of preferred stock the right to elect some number of our board of directors in all events or
on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or
redemption rights or liquidation preferences we could assign to holders of preferred stock could affect the
residual value of our common stock.
47
Finally, to facilitate compliance with the Maritime Laws, our restated certificate of incorporation limits the
aggregate percentage ownership by non-U.S. citizens of our common stock or any other class of our capital stock
to 23 percent of the outstanding shares. We may prohibit transfers that would cause ownership of our common
stock or any other class of our capital stock by non-U.S. citizens to exceed 23 percent. Our restated certificate of
incorporation also authorizes us to effect any and all measures necessary or desirable to monitor and limit foreign
ownership of our common stock or any other class of our capital stock. These limitations could have an adverse
impact on the liquidity of the market for our common stock if holders are unable to transfer shares to non-U.S.
citizens due to the limitations on ownership by non-U.S. citizens. Any such limitation on the liquidity of the
market for our common stock could adversely impact the market price of our common stock.
48
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The location and general character of our refineries, convenience stores and other important physical properties have
been described by segment under Item 1. Business and are incorporated herein by reference. The plants and facilities
have been constructed or acquired over a period of years and vary in age and operating efficiency. In addition, we
believe that our properties and facilities are adequate for our operations and that our facilities are adequately
maintained. As of December 31, 2016, we were the lessee under a number of cancellable and noncancellable leases for
certain properties, including land and building space, office equipment, storage facilities and transportation equipment.
See Item 8. Financial Statements and Supplementary Data – Note 24 for additional information regarding our leases.
MPLX
The following tables set forth certain information relating to our crude and products pipeline systems, storage
assets, gas processing facilities, fractionation facilities, natural gas gathering systems and NGL pipelines as of
December 31, 2016.
Pipeline System or Storage Asset
Origin
Destination
Diameter
(inches)
Length
(miles) Capacity(a) Associated MPC refinery
Crude oil pipeline systems (mbpd):
Patoka, IL to Lima, OH crude system
Catlettsburg, KY and Robinson, IL crude
Patoka, IL
Patoka, IL
system
Detroit, MI crude system(b)
Wood River, IL to Patoka, IL crude
system(b)
Inactive pipelines
Total
Samaria &
Romulus, MI
Wood River &
Roxana, IL
Lima, OH
Catlettsburg, KY &
Robinson, IL
Detroit, MI
20”-22”
20”-24”
16”
304
484
61
267
515
197
Detroit, Canton
Catlettsburg, Robinson
Detroit
Patoka, IL
12”-22”
115
314
All Midwest refineries
Products pipeline systems (mbpd):
Cornerstone products system
Garyville, LA products system
Texas City, TX products system
ORPL products system
Robinson, IL products system(b)
Louisville, KY Airport products system Louisville, KY
Inactive pipelines(b)
Cornerstone
Garyville, LA
Texas City, TX
Various
Various
Canton, OH
Zachary, LA
Pasadena, TX
Various
Various
Louisville, KY
8”-16”
20”-36”
16”-36”
6”-14”
10”-16”
6”-8”
Total
Wood River, IL barge dock (mbpd)
Storage assets (thousand barrels):
Neal, WV butane cavern(c)
Patoka, IL tank farm
Wood River, IL tank farm
Martinsville, IL tank farm
Lebanon, IN tank farm
Hartford, IL tank farm(d)
Total
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1,008
58
72
42
518
1,131
14
123
1,958
N/A
1,293
238
389
215
244
513
29
N/A
1,628
78
1,000
2,626
419
738
750
430
5,963
Canton
Garyville
Texas City, Galveston Bay
Catlettsburg, Canton
Robinson
Robinson
Garyville
Catlettsburg
All Midwest refineries
All Midwest refineries
Detroit, Canton
Detroit, Canton
All Midwest refineries
(a) All capacities reflect 100 percent of the pipeline systems’ and barge dock’s average capacity in thousands of barrels per day and
100 percent of the available storage capacity of our butane cavern and tank farms in thousands of barrels.
Includes pipelines leased from third parties.
The Neal, WV butane cavern is 100 percent owned by MPLX.
(b)
(c)
(d) MPLX leases the Hartford tank farm from Wood River Pipe Lines LLC and Buckeye Terminals, LLC.
49
The throughputs in the following tables are based on days in operation since the MarkWest Merger.
Gas Processing Complexes
Location
Keystone Complex
Houston Complex(e)
Majorsville Complex
Mobley Complex
Sherwood Complex
Cadiz Complex
Seneca Complex
Kenova Complex(c)
Boldman Complex(c)
Cobb Complex
Kermit Complex(c)(d)
Langley Complex
Carthage Complex
Butler County, PA
Washington County, PA
Marshall County, WV
Wetzel County, WV
Doddridge County, WV
Harrison County, OH
Noble County, OH
Wayne County, WV
Pike County, KY
Kanawha County, WV
Mingo County, WV
Langley, KY
Panola County, TX
Western Oklahoma Complex
Custer and Beckham Counties, OK
Hidalgo System
Javelina Complex
Total
Culberson County, TX
Corpus Christi, TX
Design
Throughput
Capacity
(MMcf/d)(a)
Natural Gas
Throughput
(MMcf/d)(b)
Utilization
of Design
Capacity(b)
410
555
1,070
920
1,200
525
800
160
70
65
32
325
600
425
200
142
265
446
789
690
1,020
477
595
102
30
22
N/A
99
493
333
105
99
7,467
5,565
65%
80%
74%
80%
85%
91%
74%
64%
43%
34%
N/A
30%
82%
78%
81%
70%
76%
(a) Centrahoma processing capacity of 300 MMcf/d is not included in this table as MPLX owns a non-operating interest.
(b) Natural gas throughput is a weighted average for days in operation. The utilization of design capacity has been calculated using the
weighted average design throughput capacity.
(c) A portion of the gas processed at the Boldman plant, and all of the gas processed at the Kermit plant, is further processed at the Kenova
plant to recover additional NGLs.
(d)
The Kermit processing plant is operated by a third party solely to prevent liquids from condensing in the gathering and transmission
pipelines upstream of our Kenova plant. MPLX does not receive Kermit gas volume information but does receive all of the liquids
produced at the Kermit Complex. As such, the design capacity has been excluded from the subtotal.
(e) Approximately 35 MMcf/d of processing capacity at the Houston Complex will be decommissioned during the first quarter of 2017 and
replaced with 200 MMcf/d of processing capacity.
50
Fractionation Complexes
Location
Keystone Complex(b)(c)
Houston Complex(b)
Hopedale Complex(b)(d)
Ohio Condensate Complex(e)
Siloam Complex(f)
Javelina Complex
Total
Butler County, PA
Washington County, PA
Harrison County, OH
Harrison County, OH
South Shore, KY
Corpus Christi, TX
Design
Throughput
Capacity
(mbpd)
NGL
Throughput
(mbpd)(a)
Utilization
of Design
Capacity(a)
47
60
120
23
24
11
285
14
60
110
14
15
7
220
30%
100%
92%
61%
63%
64%
77%
(a) NGL throughput is a weighted average for days in operation. The utilization of design capacity has been calculated using the weighted
average design throughput capacity.
(b)
(c)
(d)
(e)
(f)
The MPLX Houston, Hopedale and Keystone Complexes have above-ground NGL storage with a usable capacity of 28 million gallons,
large-scale truck and rail loading. In addition, the Houston Complex has large-scale truck unloading. MPLX also has access to up to an
additional 50 million gallons of propane storage capacity that can be utilized in the Marcellus Shale, Utica Shale and Appalachia region
under an agreement with a third party that expires in 2018. Lastly, MPLX has up to nine million gallons of butane storage and eight
million gallons of propane storage with third parties that can be utilized in the Marcellus Shale and Utica Shale.
Includes 33 mpbd of de-propanization only capacity.
The MPLX Hopedale Complex is jointly owned by Ohio Fractionation Company, L.L.C. (“Ohio Fractionation”) and MarkWest Utica
EMG, L.L.C. (“MarkWest Utica EMG”). Ohio Fractionation is a subsidiary of MarkWest Liberty Midstream & Resources, L.L.C.
(“MarkWest Liberty Midstream”). MarkWest Liberty Midstream and MarkWest Utica EMG are entities that operate in the Marcellus and
Utica regions, respectively. MPLX accounts for MarkWest Utica EMG as an equity method investment.
The Ohio Condensate Complex is owned by MarkWest Utica EMG Condensate, L.L.C. MPLX accounts for Ohio Condensate as an
equity method investment.
The MPLX Siloam Complex has both above-ground, pressurized NGL storage facilities, with usable capacity of two million gallons, and
underground storage facilities, with usable capacity of 10 million gallons. Product can be received by truck, pipeline or rail and can be
transported from the facility by truck, rail or barge. This facility has large-scale truck and rail loading and unloading capabilities, and a
river barge facility capable of loading barges up to 860,000 gallons.
De-ethanization Complexes
Location
Keystone Complex
Houston Complex
Majorsville Complex
Mobley Complex
Sherwood Complex
Cadiz Complex
Javelina Complex
Total
Butler County, PA
Washington County, PA
Marshall County, WV
Wetzel County, WV
Doddridge County, WV
Harrison County, OH
Corpus Christi, TX
Design
Throughput
Capacity
(mbpd)
Natural Gas
Throughput
(mbpd)(a)
Utilization
of Design
Capacity(a)
14
40
40
10
40
40
18
11
37
42
6
18
4
11
202
129
79%
93%
105%
82%
45%
10%
61%
64%
(a) NGL throughput is a weighted average for days in operation. The utilization of design capacity has been calculated using the weighted
average design throughput capacity.
51
Natural Gas Gathering Systems
Location
Design
Throughput
Capacity
(MMcf/d)
Natural Gas
Throughput
(MMcf/d)(a)
Utilization
of Design
Capacity(a)
Keystone System
Houston System
Ohio Gathering System(b)
Jefferson Gas System(c)
East Texas System
Western Oklahoma System
Southeast Oklahoma System
Eagle Ford System
Other Systems(d)
Total
Butler County, PA
Washington County, PA
Harrison, Monroe, Belmont, Guernsey
and Noble Counties, OH
Jefferson County, OH
Harrison and Panola Counties, TX
Wheeler County, TX and Roger Mills,
Ellis, Custer, Beckham and Washita
Counties, OK
Hughes, Pittsburg and Coal Counties,
OK
Dimmit County, TX
Various
227
984
1,393
250
680
585
1,205
45
70
194
716
867
65
578
364
449
31
11
5,439
3,275
85%
74%
63%
26%
85%
62%
37%
69%
16%
61%
(a) Natural gas throughput is a weighted average for days in operation. The utilization of design capacity has been calculated using the
weighted average design throughput capacity.
(b)
(c)
The Ohio Gathering System is owned by Ohio Gathering Company, L.L.C., which MPLX accounts for as an equity method investment.
The Jefferson Gas System is owned by Jefferson Dry Gas, which is a joint venture between MarkWest Liberty Midstream and EMG
MWE Dry Gas Holdings, LLC. MPLX accounts for Jefferson Dry Gas as an equity method investment.
(d)
Excludes lateral pipelines where revenue is not based on throughput.
52
NGL Pipeline
Sherwood to Mobley propane and heavier liquids
pipeline
Mobley to Majorsville propane and heavier liquids
pipeline
Majorsville to Houston propane and heavier liquids
pipeline
Majorsville to Hopedale propane and heavier liquids
pipeline
Third party processing plant to Keystone ethane and
heavier liquids pipeline
Keystone to Mariner West ethane pipeline(a)
Houston to Ohio River ethane pipeline(b)
Majorsville to Houston ethane pipeline(a)
Sherwood to Mobley ethane pipeline
Mobley to Fort Beeler ethane pipeline
Fort Beeler to Majorsville ethane pipeline
Seneca to Cadiz liquids pipeline
Cadiz to Hopedale liquids pipeline
Langley to Siloam liquids pipeline(c)
East Texas liquids pipeline
Location
Doddridge County, WV
to Wetzel County, WV
Wetzel County, WV to
Marshall County, WV
Marshall County, WV to
Washington County, PA
Marshall County, WV to
Harrison County, OH
Butler County, PA
Butler County, PA to
Beaver County, PA
Washington County, PA
to Beaver County, PA
Marshall County, WV to
Washington County, PA
Doddridge County, WV
to Wetzel County, WV
Wetzel County, WV to
Marshall County, WV
Marshall County, WV
Noble County, OH to
Harrison County, OH
Harrison County, OH
Langley, KY to South
Shore, KY
Panola County, TX
Design
Throughput
Capacity
(mbpd)
NGL
Throughput
(mbpd)
Utilization
of Design
Capacity
45
80
47
90
32
35
57
60
27
64
45
90
90
17
39
40
64
34
72
7
12
16
66
18
24
24
20
38
12
27
89%
80%
72%
80%
22%
34%
28%
110%
67%
38%
53%
22%
42%
71%
69%
(a)
(b)
This pipeline is FERC-regulated.
This is the section of the Mariner West pipeline, which is FERC-regulated, leased to and operated by Sunoco Logistics Partners LP.
(c) NGLs transported through the Langley to Ranger and Ranger to Kenova pipelines are combined with NGLs recovered at the Kenova
facility. The design capacity and volume reported for the Langley to Siloam pipeline represent the combined NGL stream.
Crude Oil Pipeline
Michigan crude pipeline
Design
Throughput
Capacity
(mbpd)
NGL
Throughput
(mbpd)
Utilization
of Design
Capacity
60
9
15%
Location
Manistee County, MI to
Crawford County, MI
53
MPC-Retained Midstream Assets and Investments
The following tables set forth certain information related to our crude and products pipeline systems not owned
by MPLX.
As of December 31, 2016, we owned undivided joint interests in the following common carrier crude oil pipeline
systems.
Pipeline System
Origin
Destination
Diameter
(inches)
Length
(miles)
Ownership
Interest
Operated
by MPL
Capline
Maumee
Total
St. James, LA
Patoka, IL
Lima, OH
Samaria, MI
40”
22”
33%
26%
Yes
No
644
95
739
As of December 31, 2016, we had partial ownership interests in the following pipeline companies.
Pipeline Company
Origin
Destination
Diameter
(inches)
Length
(miles)
Ownership
Interest
Operated
by MPL
Crude oil pipeline companies:
Illinois Extension Pipeline Company LLC Flanagan, IL
Patoka, IL
LOCAP LLC
LOOP LLC (LOOP)
Total
Products pipeline companies:
Clovelly, LA
St. James, LA
Offshore Gulf of
Mexico
Clovelly, LA
24”
48”
48”
Ascension Pipeline Company LLC(a)
Riverside, LA
Garyville
TBD
Centennial Pipeline LLC(b)
Beaumont, TX
Bourbon, IL
24”-26”
168
57
48
273
TBD
796
Explorer Pipeline Company
Port Arthur, TX Hammond, IN 12”-28”
1,883
Muskegon Pipeline LLC
Griffith, IN
Muskegon, MI
10”
Wolverine Pipe Line Company
Chicago, IL
Bay City &
Ferrysburg, MI
6”-18”
Total
170
743
3,592
35%
59%
51%
50%
50%
25%
60%
6%
No
No
No
No
Yes
No
Yes
No
(a)
The pipeline diameter and length for these companies will be determined when these pipeline projects are placed into service.
(b) All system pipeline miles are inactive.
54
We also own 183 miles of private crude oil pipelines and 658 miles of private refined products pipelines that are
operated by MPL for the benefit of our Refining & Marketing segment on a cost recovery basis. The following
table provides additional information on these assets.
Private Pipeline Systems
Crude oil pipeline systems:
Lima, OH to Canton, OH
St. James, LA to Garyville, LA
Other
Inactive pipelines
Total
Products pipeline systems:
Louisville, KY to Lexington, KY(a)
Woodhaven, MI to Detroit, MI
Illinois pipeline systems
Texas pipeline systems
Ohio pipeline systems
Inactive pipelines
Total
Diameter
(inches)
Length
(miles)
Capacity
(mbpd)
12”-16”
30”
6”-14”
8”
4”
4”-12”
8”
4”-12”
153
20
2
8
183
87
26
118
103
57
267
658
85
620
15
N/A
720
37
12
39
45
32
N/A
165
(a) We own a 65 percent undivided joint interest in the Louisville, KY to Lexington, KY system.
As of December 31, 2016, we owned or leased 63 private tanks with storage capacity of approximately
7.1 million barrels, which are located along MPL and ORPL pipelines.
Item 3. Legal Proceedings
We are the subject of, or a party to, a number of pending or threatened legal actions, contingencies and
commitments involving a variety of matters, including laws and regulations relating to the environment. Some of
these matters are discussed below.
Litigation
We are a party to a number of lawsuits and other proceedings and cannot predict the outcome of every such
matter with certainty. While it is possible that an adverse result in one or more of the lawsuits or proceedings in
which we are a defendant could be material to us, based upon current information and our experience as a
defendant in other matters, we believe that these lawsuits and proceedings, individually or in the aggregate, will
not have a material adverse effect on our consolidated results of operations, financial position or cash flows.
In May 2015, the Kentucky attorney general filed a lawsuit against our wholly-owned subsidiary, Marathon
Petroleum Company LP (“MPC LP”), in the United States District Court for the Western District of Kentucky
asserting claims under federal and state antitrust statutes, the Kentucky Consumer Protection Act, and state
common law. The complaint, as amended in July 2015, alleges that MPC LP used deed restrictions, supply
agreements with customers and exchange agreements with competitors to unreasonably restrain trade in areas
within Kentucky and seeks declaratory relief, unspecified damages, civil penalties, restitution and disgorgement
55
of profits. At this early stage, the ultimate outcome of this litigation remains uncertain, and neither the likelihood
of an unfavorable outcome nor the ultimate liability, if any, can be determined, and we are unable to estimate a
reasonably possible loss (or range of loss) for this matter. We intend to vigorously defend ourselves in this
matter.
In May 2007, the Kentucky attorney general filed a lawsuit against us and Marathon Oil in state court in Franklin
County, Kentucky for alleged violations of Kentucky’s emergency pricing and consumer protection laws
following Hurricanes Katrina and Rita in 2005. The lawsuit alleges that we overcharged customers by
$89 million during September and October 2005. The complaint seeks disgorgement of these sums, as well as
penalties, under Kentucky’s emergency pricing and consumer protection laws. We are vigorously defending this
litigation. We believe that this is the first lawsuit for damages and injunctive relief under the Kentucky
emergency pricing laws to progress this far and it contains many novel issues. In May 2011, the Kentucky
to include a request for immediate injunctive relief as well as
attorney general amended his complaint
unspecified damages and penalties related to our wholesale gasoline pricing in April and May 2011 under
statewide price controls that were activated by the Kentucky governor on April 26, 2011 and which have since
expired. The court denied the attorney general’s request for immediate injunctive relief, and the remainder of the
2011 claims likely will be resolved along with those dating from 2005. If the lawsuit is resolved unfavorably in
its entirety, it could materially impact our consolidated results of operations, financial position or cash flows.
However, management does not believe the ultimate resolution of this litigation will have a material adverse
effect.
Environmental Proceedings
The Illinois Environmental Protection Agency (“IEPA”) initiated an enforcement action against Marathon Pipe
Line LLC, a wholly-owned subsidiary of MPLX (“MPL”), in connection with an April 17, 2016 pipeline release
to the Wabash River near Crawleyville, Indiana. MPL responded to a Clean Water Act request for information
from the EPA in furtherance of its investigation of possible violations arising from the April 17, 2016 pipeline
release. The IEPA and the EPA may each seek penalties in excess of $100,000 in connection with this matter.
On February 17, 2016, MarkWest Liberty Bluestone, L.L.C., a wholly-owned subsidiary of MPLX (“MarkWest
Liberty Bluestone”), received an initial Consent Agreement and Final Order (“Initial CAFO”) from the EPA
alleging violations of the Clean Air Act resulting from an EPA compliance inspection conducted in July 2012 at
our Sarsen Facility, a gas processing facility at our Keystone Complex located in Pennsylvania. The alleged
violations included the failure to comply with monitoring, tagging, recordkeeping and repair requirements with
respect to certain pumps and/or valves at the facility and with certain emissions reduction and permit application
requirements. The Initial CAFO set forth a proposed penalty of $285,000. After subsequent negotiations,
MarkWest Liberty Bluestone has agreed in principle to a Consent Agreement and Final Order resolving these
issues, pursuant to which MarkWest Liberty Bluestone would pay a penalty of $95,000 and implement certain
enhancements in connection with its existing leak monitoring program.
MarkWest Liberty Midstream, MarkWest Ohio Fractionation Company, L.L.C. (“Ohio Fractionation”) and
MarkWest Utica EMG are in settlement discussions with the EPA relating to certain notices of violation alleging
claims regarding fugitive emissions and violations of the Clean Air Act at the MarkWest Hopedale Complex, a
fractionation facility located in Ohio (issued October 7, 2015 and June 27, 2016), the MarkWest Houston
Complex, a gas processing facility located in Pennsylvania (issued April 5, 2016) and the MarkWest Seneca
Complex, a gas processing facility located in Ohio (issued September 9, 2016). In connection with a proposed
global settlement which would cover nineteen gas processing and fractionation sites, MarkWest Liberty
Midstream, Ohio Fractionation and MarkWest Utica EMG, together with other MarkWest affiliates, have agreed
in principle to pay a penalty of approximately $0.9 million, undertake certain monitoring and emission reduction
projects at certain facilities with an estimated cost of approximately $3.3 million, and implement certain process
enhancements for its and its affiliates’ leak detection and repair programs at the nineteen gas processing and
fractionation sites.
56
In July 2015, representatives from the EPA and the United States Department of Justice conducted a raid on a
MarkWest Liberty Midstream pipeline launcher/receiver site utilized for pipeline maintenance operations in
Washington County, Pennsylvania pursuant to a search warrant issued by a magistrate of the United States
District Court for the Western District of Pennsylvania. As part of this initiative, the U.S. Attorney’s Office for
the Western District of Pennsylvania, proceeded with an investigation of MarkWest Liberty Midstream’s
launcher/receiver, pipeline and compressor station operations. In response to the investigation, MarkWest
initiated independent studies which demonstrated that there was no risk to worker safety and no threat of public
harm associated with MarkWest Liberty Midstream’s launcher/receiver operations. These findings were
supported by a subsequent inspection and review by the Occupational Safety and Health Administration. After
providing these studies, and other substantial documentation related to MarkWest Liberty Midstream’s pipeline
and compressor stations, and arranging site visits and conducting several meetings with the government’s
representatives, on September 13, 2016, the U.S. Attorney’s Office for the Western District of Pennsylvania
rendered a declination decision, dropping its criminal investigation and declining to pursue charges in this matter.
MarkWest Liberty Midstream continues to discuss with the EPA and the State of Pennsylvania civil enforcement
allegations associated with permitting or other related regulatory obligations for its launcher/receiver and
compressor station facilities in the region. In connection with these discussions, MarkWest Liberty Midstream
received an initial proposal from the EPA to settle all civil claims associated with this matter for the combination
of a proposed cash penalty of approximately $2.4 million and proposed supplemental environmental projects
with an estimated cost of approximately $3.6 million. MarkWest Liberty Midstream will be submitting a
response asserting that this action involves novel issues surrounding primarily minor source emissions from
facilities that the agencies themselves considered de minimis were not subject to regulation and consequently that
the settlement proposal is excessive. MarkWest will continue to negotiate with the EPA regarding the amount
and scope of the proposed settlement.
During 2001, we entered into a New Source Review consent decree and settlement of alleged Clean Air Act and
other violations with the EPA covering our refineries. The settlement committed us to specific control
technologies and implementation schedules for environmental expenditures and improvements to our refineries,
which are now complete. Based on our satisfaction of obligations under the consent decree, on October 31, 2016,
MPC and the United States Department of Justice jointly requested termination of the consent decree, and on
November 29, 2016, the U.S. District Court for the Eastern District of Michigan entered an order terminating the
consent decree.
We are involved in a number of other environmental proceedings arising in the ordinary course of business.
While the ultimate outcome and impact on us cannot be predicted with certainty, we believe the resolution of
these environmental proceedings will not have a material adverse effect on our consolidated results of operations,
financial position or cash flows.
Item 4. Mine Safety Disclosures
Not applicable.
57
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Our common stock is listed on the NYSE and traded under the symbol “MPC.” As of February 13, 2017, there
were 34,310 registered holders of our common stock.
On April 29, 2015, our board of directors approved a two-for-one stock split in the form of a stock dividend,
which was distributed on June 10, 2015, to shareholders of record at the close of business on May 20, 2015. All
historical share and per share data included in this report have been retroactively restated on a post-split basis.
The following table reflects intraday high and low sales prices of and dividends declared on our common stock
by quarter:
High
Price
2016
Low
Price
Dividends
High
Price
2015
Low
Price
Dividends
$
52.83
$
29.24
$
43.26
44.56
51.15
52.83
32.02
35.16
40.01
29.24
0.32
0.32
0.36
0.36
1.36
$
54.16
$
37.62
$
53.07
60.38
59.99
60.38
48.41
43.42
46.03
37.62
0.25
0.25
0.32
0.32
1.14
Dollars per share
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Year
Dividends
Our board of directors intends to declare and pay dividends on our common stock based on our financial
condition and consolidated results of operations. On January 27, 2017, our board of directors approved a 36 cent
per share dividend, payable March 10, 2017 to shareholders of record at the close of business on February 16,
2017.
Dividends on our common stock are limited to our legally available funds.
58
Issuer Purchases of Equity Securities
The following table sets forth a summary of our purchases during the quarter ended December 31, 2016, of
equity securities that are registered by MPC pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended:
Period
10/01/16-10/31/16
11/01/16-11/30/16
12/01/16-12/31/16
Total
Total Number
of Shares
Purchased(a)
Average
Price Paid
per Share(b)
3,496
$
348
407,070
410,914
40.65
43.33
49.16
49.08
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs
Maximum Dollar
Value of Shares that
May Yet Be Purchased
Under the Plans
or Programs(c)
-
-
406,820
406,820
$
2,584,139,110
2,584,139,110
2,564,140,333
(a)
The amounts in this column include 3,496, 348 and 250 shares of our common stock delivered by employees to MPC, upon vesting of
restricted stock, to satisfy tax withholding requirements in October, November and December, respectively.
(b) Amounts in this column reflect the weighted average price paid for shares purchased under our share repurchase authorizations and for
shares tendered to us in satisfaction of employee tax withholding obligations upon the vesting of restricted stock granted under our stock
plans. The weighted average price includes commissions paid to brokers on shares purchased under our share repurchase authorizations.
(c) On July 30, 2015, we announced that our board of directors had approved a $2.0 billion share repurchase authorization in addition to the
$2.0 billion share repurchase authorization announced on July 30, 2014, with such outstanding authorizations to expire on July 31, 2017.
These authorizations, together with prior authorizations, result in a total of $10.0 billion of share repurchase authorizations since
January 1, 2012.
59
Item 6. Selected Financial Data
The following table should be read in conjunction with Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations and Item 8. Financial Statements and Supplementary Data.
(In millions, except per share data)
2016
2015(a)
2014(a)
2013(a)
2012
Year Ended December 31,
Statements of Income Data
Revenues
Income from operations
Net income
Net income attributable to MPC
Per Share Data(b)
Net income attributable to MPC per share:
Basic
Diluted
Dividends per share
Statements of Cash Flows Data
$ 63,339
$
72,051
$
97,817
$
100,160
$
82,243
2,378
1,213
1,174
4,692
2,868
2,852
4,051
2,555
2,524
3,425
2,133
2,112
$
$
$
2.22
2.21
1.36
$
$
$
5.29
5.26
1.14
$
$
$
4.42
4.39
0.92
$
$
$
3.34
3.32
0.77
$
$
$
5,347
3,393
3,389
4.97
4.95
0.60
4,492
1,369
190
1,350
407
Net cash provided by operating activities
$
3,986
$
4,061
$
3,110
$
3,405
$
Additions to property, plant and equipment
Acquisitions, net of cash acquired(a)
Common stock repurchased
Dividends paid
2,892
-
197
719
1,998
1,218
965
613
1,480
2,821
2,131
524
1,206
1,515
2,793
484
(In millions)
Balance Sheets Data
Total assets
Long-term debt, including capitalized leases(c)
Noncontrolling interests
Total equity
December 31,
2016
2015(a)
2014(a)
2013(a)
2012
$ 44,413
$
43,115
$
30,425
$
28,367
$
27,203
10,572
6,646
20,203
11,925
6,438
19,675
6,602
639
11,390
3,378
412
3,341
411
11,332
12,105
(a) On December 4, 2015, MPLX, our consolidated subsidiary, merged with MarkWest. On September 30, 2014, we acquired Hess’ Retail
Operations and Related Assets. On February 1, 2013, we acquired the Galveston Bay Refinery and Related Assets. The financial results
for these operations are included in our consolidated results from the date of acquisition.
(b)
(c)
The number of weighted average shares reflect the impacts of shares of common stock repurchased under our share repurchase plans.
Includes amounts due within one year. During 2015, in connection with the MarkWest Merger, MPLX assumed MarkWest Senior Notes
with an aggregate principal amount of $4.1 billion and used its credit facility to repay $850 million of the $943 million of borrowings
under MarkWest’s credit facility. During 2014, we issued $1.95 billion aggregate principal amount of senior notes and entered into a
$700 million term loan agreement to fund a portion of the Hess’ Retail Operations and Related Assets acquisition.
60
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in
conjunction with the information included under Item 1. Business, Item 1A. Risk Factors, Item 6. Selected
Financial Data and Item 8. Financial Statements and Supplementary Data.
Management’s Discussion and Analysis of Financial Condition and Results of Operations includes various
forward-looking statements concerning trends or events potentially affecting our business. You can identify our
forward-looking statements by words such as “anticipate,” “believe,” “design,” “estimate,” “objective,” “expect,”
“forecast,” “outlook,” “goal,” “guidance,” “imply,” “intend,” “plan,” “predict,” “prospective,” “project,”
“opportunity,” “potential,” “position,” “pursue,” “strategy,” “seek,” “target,” “could,” “may,” “should,” “would,”
“will” or other similar expressions that convey the uncertainty of future events or outcomes. In accordance with
these statements are
“safe harbor” provisions of the Private Securities Litigation Reform Act of 1995,
accompanied by cautionary language identifying important factors, though not necessarily all such factors, which
could cause future outcomes to differ materially from those set forth in forward-looking statements.
Corporate Overview
We are an independent petroleum refining and marketing, retail and midstream company. Overall, we are one of
the largest independent petroleum product refining, marketing, retail and transportation businesses in the United
States and the largest east of the Mississippi.
We currently own and operate seven refineries, all located in the United States, with an aggregate crude oil
refining capacity of approximately 1.8 mmbpcd. Our refineries supply refined products to resellers and
consumers within our market areas, including the Midwest, Northeast, East Coast, Southeast and Gulf Coast
regions of the United States. We distribute refined products to our customers through one of the largest terminal
operations in the United States and a combination of MPC-owned and third-party-owned trucking and rail assets.
We are one of the largest wholesale suppliers of gasoline and distillates to resellers within our market area.
We have two strong retail brands: Speedway® and Marathon®. We believe that Speedway LLC, a wholly-owned
subsidiary, operates the second largest chain of company-owned and operated retail gasoline and convenience
stores in the United States, with approximately 2,730 convenience stores in 21 states throughout the Midwest,
East Coast and Southeast. The Marathon brand is an established motor fuel brand in the Midwest and Southeast
regions of the United States, and is available through approximately 5,500 retail outlets operated by independent
entrepreneurs in 19 states.
Through our ownership interests in MPLX and its wholly-owned subsidiary, MarkWest, we are one of the largest
processors of natural gas in the United States, the largest processor and fractionator in the Marcellus and Utica
shale regions and we distribute refined products through one of the largest private domestic fleets of inland
petroleum product barges. Our integrated midstream energy asset network links producers of natural gas and
NGLs from some of the largest supply basins in the United States to domestic and international markets. Our
midstream gathering and processing operations include: natural gas gathering, processing and transportation; and
NGL gathering, transportation, fractionation, storage and marketing. Our assets include approximately 7,500
MMcf/d of natural gas processing capacity and 500 mbpd of fractionation capacity as of December 31, 2016. We
also own 5,600 miles of gas gathering and NGL pipelines and have ownership interests in more than 50 gas
processing plants, more than 10 NGL fractionation facilities and two condensate stabilization facilities. As of
December 31, 2016, we owned, leased or had ownership interests in approximately 8,400 miles of crude oil and
refined product pipelines to deliver crude oil to our refineries and other locations and refined products to
wholesale and retail market areas.
We revised our operating segment presentation in the first quarter of 2016 in connection with the contribution of
our inland marine business to MPLX. In previous periods, our inland marine business and our investment in an
61
ocean vessel joint venture, Crowley Ocean Partners, were presented within our Refining & Marketing segment.
They are now presented in our Midstream segment. Comparable prior period information has been recast to
reflect our revised segment presentation. We plan additional dropdowns of MLP-qualifying assets to MPLX in
2017 and would expect changes to our segment reporting in connection with these transactions.
Our operations consist of three reportable operating segments: Refining & Marketing; Speedway; and
Midstream. Each of these segments is organized and managed based upon the nature of the products and services
they offer. See Item 1. Business for additional information on our segments.
• Refining & Marketing – refines crude oil and other feedstocks at our seven refineries in the Gulf Coast
and Midwest regions of the United States, purchases refined products and ethanol for resale and
distributes refined products through various means, including terminals and trucks that we own or
operate. We sell refined products to wholesale marketing customers domestically and internationally,
buyers on the spot market, our Speedway business segment and to independent entrepreneurs who
operate Marathon® retail outlets.
•
Speedway – sells transportation fuels and convenience products in the retail market in the Midwest,
East Coast and Southeast.
• Midstream – includes the operations of MPLX and certain other related operations. The Midstream
segment gathers, processes and transports natural gas; gathers, transports, fractionates, stores and
markets NGLs and transports and stores crude oil and refined products.
Strategic Actions to Enhance Shareholder Value
On January 3, 2017, we announced plans to significantly accelerate the dropdown of assets with an estimated
$1.4 billion of MLP-eligible annual EBITDA to MPLX now expected to be completed in 2017, subject to
requisite approvals and regulatory clearances, including tax clearance, and market and other conditions. We
expect these dropdowns to be valued consistent with recent industry precedent valuation multiples ranging
between 7.0x and 9.0x EBITDA, subject to the MPLX conflicts committee review process and receipt of
customary fairness opinions. We also expect MPLX to finance the dropdown transactions with debt and equity in
approximately equal proportions in the aggregate for all planned dropdowns of assets. The equity financing is
expected to be funded through MPLX common units issued to us. In conjunction with the completion of the
dropdowns, we also expect to exchange our economic interests in the general partner of MPLX, including
incentive distribution rights, for newly issued MPLX common units. Additionally, a special committee of our
board of directors, with the assistance of an independent financial advisor, will conduct a full and thorough
review of Speedway to ensure optimum value is being delivered to shareholders over the long term. We expect to
provide an update on the review by mid-2017. This significant acceleration of dropdowns and other announced
strategic actions are designed to further highlight the substantial value embedded in our integrated businesses.
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Executive Summary
Results
Select results for 2016 and 2015 are reflected in the following table.
(In millions, except per share data)
Income from Operations by segment
Refining & Marketing
Speedway
Midstream
Items not allocated to segments
Total
Net income attributable to MPC
Net income attributable to MPC per diluted share
2016
2015
$
1,543
$
4,086
734
871
(770)
$
$
$
2,378
1,174
2.21
$
$
$
673
380
(447)
4,692
2,852
5.26
Net income attributable to MPC decreased $1.68 billion, or $3.05 per diluted share, in 2016 compared to 2015,
primarily due to reduced results from our Refining & Marketing segment.
Refining & Marketing segment income from operations decreased in 2016 compared to 2015. Segment income in
2015 includes a $345 million non-cash charge related to the Company’s LCM inventory reserve. Due to
increased refined product prices in 2016, this inventory reserve was completely reversed resulting in a non-cash
benefit to segment income of $345 million. The favorable LCM inventory adjustment variance was more than
offset by the unfavorable effects of lower crack spreads and higher direct operating costs due to refinery
turnarounds.
Speedway segment income from operations increased in 2016 compared to 2015. Segment income in 2015
includes a $25 million non-cash charge related to the Company’s LCM inventory reserve. Due to increased
refined product prices in 2016, this inventory reserve was completely reversed resulting in a non-cash benefit to
segment income of $25 million. In addition to the favorable LCM inventory adjustment variance, the remaining
increase during the year was primarily due to higher merchandise gross margin and gains from asset sales,
partially offset by lower gasoline and distillate gross margins.
Midstream segment income from operations increased in 2016 compared to 2015, primarily due to the inclusion
of MarkWest’s operating results following the merger with MPLX on December 4, 2015 (as discussed below), as
well as earnings from new and existing pipeline and marine equity investments.
Items not allocated to segments in 2016 includes non-cash impairment charges totaling $486 million, which
included $267 million related to our equity method investment in the Sandpiper pipeline project resulting from
the indefinite deferral of this project, $130 million related to the goodwill recognized in connection with the
MarkWest Merger and $89 million related to an MPLX equity method investment. Items not allocated to
segments in 2015 includes an impairment charge of $144 million related to the cancellation of the ROUX project.
MPLX LP
MPLX is a diversified, growth-oriented publicly traded master limited partnership originally formed by us to
own, operate, develop and acquire midstream energy infrastructure assets. MPLX is engaged in the gathering,
processing and transportation of natural gas; the gathering, transportation, fractionation, storage and marketing of
NGLs; and the gathering, transportation and storage of crude oil and refined petroleum products. On December 4,
2015, MPLX merged with MarkWest, whereby MarkWest became a wholly-owned subsidiary of MPLX.
is engaged in the gathering, processing and transportation of natural gas and the gathering,
MarkWest
transportation, fractionation, storage and marketing of NGLs.
63
As of December 31, 2016, we owned a 25.5 percent interest in MPLX, including a two percent general partner
interest. This ownership percentage reflects the conversion of the MPLX Class B Units in July 2017 at 1.09 to
1.00. MPLX is a VIE because the limited partners of MPLX do not have substantive kick-out or substantive
participating rights over the general partner. We are the primary beneficiary of MPLX because in addition to
significant economic interest, we also have the power, through our 100 percent ownership of the general partner,
to control the decisions that most significantly impact MPLX. We therefore consolidate MPLX and record a
noncontrolling interest for the 74.5 percent interest owned by the public. The components of our noncontrolling
interest consist of equity-based noncontrolling interest and redeemable noncontrolling interest. The redeemable
noncontrolling interest relates to MPLX’s preferred units, discussed below.
The creditors of MPLX do not have recourse to MPC’s general credit through guarantees or other financial
arrangements. The assets of MPLX are the property of MPLX and cannot be used to satisfy the obligations of
MPC.
Dropdowns to MPLX
On March 1, 2014, we sold MPLX a 13 percent interest in MPLX Pipe Line Holdings LLC (“Pipe Line
Holdings”) for $310 million. MPLX financed this transaction with $40 million of cash on-hand and $270 million
of borrowings on its bank revolving credit facility.
On December 1, 2014, we sold and contributed interests in Pipe Line Holdings totaling 30.5 percent to MPLX for
$600 million in cash and 2.9 million MPLX common units valued at $200 million. MPLX financed the sales
portion of this transaction with $600 million of borrowings on its bank revolving credit facility.
On December 4, 2015, we sold our remaining 0.5 percent interest in Pipe Line Holdings to MPLX for
$12 million. As a result, MPLX now owns 100 percent of Pipe Line Holdings.
The sales and contribution of our interests in Pipe Line Holdings to MPLX resulted in a change of our ownership
in Pipe Line Holdings, but not a change in control. We accounted for these sales as transactions between entities
under common control and did not record a gain or loss.
On March 31, 2016, we contributed our inland marine business to MPLX in exchange for 23 million common
units and 460 thousand general partner units. The number of units we received from MPLX was determined by
dividing $600 million by the volume weighted average NYSE price of MPLX common units for the 10 trading
days preceding March 14, 2016, pursuant to the Membership Interests Contribution Agreement. We also agreed
to waive first-quarter 2016 common unit distributions, IDRs and general partner distributions with respect to the
common units issued in this transaction. The contribution of our inland marine business was accounted for as a
transaction between entities under common control and we did not record a gain or loss.
On December 5, 2016, our board of directors authorized us to offer up to 100 percent of MPLX Terminals LLC
(“MPLX Terminals”), Hardin Street Transportation LLC (“Hardin Street Transportation”) and Woodhaven
Cavern LLC (“Woodhaven Cavern”) to MPLX. MPLX Terminals owns and operates light products terminals.
Hardin Street Transportation owns and operates various private crude oil and refined product pipeline systems
and associated storage tanks. Woodhaven Cavern owns and operates butane and propane storage caverns. The
transaction is expected to close in the first quarter of 2017, pending requisite approvals.
Reorganization Transactions
On September 1, 2016, MPC, MPLX and various affiliates initiated a series of reorganization transactions in
order to simplify MPLX’s ownership structure and its financial and tax reporting. In connection with these
transactions, MPC contributed $225 million to MPLX, and all of the issued and outstanding MPLX Class A
Units, all of which were held by MarkWest Hydrocarbon, a wholly-owned subsidiary of MPLX, were exchanged
64
for newly issued common units representing limited partner interests in MPLX. The simple average of the
closing prices of MPLX common units for the last 10 trading days prior to September 1, 2016 was used for
purposes of these transactions. As a result of these transactions, MPC increased its ownership interest in MPLX
by 7 million MPLX common units, or approximately 1 percent.
Private Placement of Preferred Units
On May 13, 2016, MPLX completed the private placement of approximately 30.8 million 6.5 percent Series A
Convertible Preferred Units (the “MPLX Preferred Units”) at a cash price of $32.50 per unit. The aggregate net
proceeds of approximately $984 million from the sale of the MPLX Preferred Units was used for capital
expenditures, repayment of debt and general partnership purposes.
The MPLX Preferred Units rank senior to all MPLX common units with respect to distributions and rights upon
liquidation. The holders of the MPLX Preferred Units are entitled to receive quarterly distributions equal to
$0.528125 per unit commencing for the quarter ended June 30, 2016, with a prorated amount from the date of
issuance. Following the second anniversary of the issuance of the MPLX Preferred Units, the holders of the
MPLX Preferred Units will receive as a distribution the greater of $0.528125 per unit or the amount of per unit
distributions paid to common units. The MPLX Preferred Units are convertible into MPLX common units on a
one for one basis after three years, at the purchasers’ option, and after four years at MPLX’s option, subject to
certain conditions.
The MPLX Preferred Units are considered redeemable securities due to the existence of redemption provisions
upon a deemed liquidation event which is considered outside our control. Therefore they are presented as
temporary equity in the mezzanine section of the consolidated balance sheets. We have recorded the MPLX
Preferred Units at fair value as of their issuance date, net of issuance costs. Since the MPLX Preferred Units are
not currently redeemable and not probable of becoming redeemable in the future, adjustment to the initial
carrying amount is not necessary and would only be required if it becomes probable that the security would
become redeemable.
Public Offerings
On December 8, 2014, MPLX completed a public offering of 3.5 million common units at a price to the public of
$66.68 per MPLX common unit, with net proceeds of $221 million. MPLX used the net proceeds from this
offering to repay borrowings under its bank revolving credit facility and for general partnership purposes.
On February 12, 2015, MPLX completed an underwritten public offering of $500 million aggregate principal
amount of four percent unsecured senior notes due February 15, 2025 (the “Senior Notes”). The Senior Notes
were offered at a price to the public of 99.64 percent of par. The net proceeds of this offering were used to for
general corporate purposes, including dropdowns.
On February 10, 2017, MPLX completed a public offering of $1.25 billion aggregate principal amount of 4.125%
unsecured senior notes due March 2027 (the “MPLX 2027 Senior Notes”) and $1.0 billion aggregate principal
amount of 5.200% unsecured senior notes due March 2047 (the “MPLX 2047 Senior Notes”). MPLX intends to
use the net proceeds from this offering for general partnership purposes, which may include, from time to time,
acquisitions (including the previously announced planned dropdown of assets from MPC) and capital
expenditures.
ATM Program
On August 4, 2016, MPLX entered into a Second Amended and Restated Distribution Agreement (the
“Distribution Agreement”) providing for the continuous issuance of common units, in amounts, at prices and on
terms to be determined by market conditions and other factors at the time of any offerings (such continuous
65
offering program, or at-the-market program, referred to as the “ATM Program”). MPLX expects to use the net
proceeds from sales under the ATM Program for general partnership purposes including repayment of debt and
funding for acquisitions, working capital requirements and capital expenditures.
During 2016, MPLX issued an aggregate of 26 million common units under the ATM Program, generating net
proceeds of approximately $776 million. As of December 31, 2016, $717 million of common units remains
available for issuance through the ATM Program under the Distribution Agreement.
Distributions from MPLX
The following table summarizes the cash distributions we received from MPLX during 2016 and 2015.
(In millions)
Cash distributions received from MPLX:
General partner distributions, including IDRs
Limited partner distributions
Total
2016
2015
$
$
190
142
332
$
$
21
97
118
The market value of the 86.6 million MPLX common units we owned at December 31, 2016 was $3.0 billion
based on the December 31, 2016 closing unit price of $34.62. As mentioned in the Strategic Actions to Enhance
Shareholder Value section above, we believe there is substantial value in our economic interests in the general
partner of MPLX and expect to exchange these economic interests for newly issued MPLX common units in
conjunction with completion of our dropdowns to highlight and capture that value.
On January 25, 2017, MPLX declared a quarterly cash distribution of $0.52 per common unit, which was payable
February 14, 2017. As a result, MPLX made distributions totaling $243 million to its limited and general
partners. MPC’s portion of this distribution was approximately $102 million, $57 million for its general partner
interests including IDRs and $45 million for its limited partner units.
See Item 8. Financial Statements and Supplementary Data — Note 4 for additional information on MPLX.
Acquisitions and Investments
On February 13, 2017, MPLX announced that it had entered into an asset purchase agreement with Enbridge
Pipelines (Ozark) LLC (“Enbridge Ozark”), under which an affiliate of Pipe Line Holdings has agreed to
purchase the Ozark pipeline for approximately $220 million from Enbridge Ozark. The Ozark pipeline is a
433-mile, 22-inch crude oil pipeline originating in Cushing, Oklahoma, and terminating in Wood River, Illinois,
capable of transporting approximately 230 mbpd. The purchase transaction is expected to close in the first
quarter of 2017, subject to customary closing conditions, including regulatory approvals.
On February 6, 2017, MPLX announced that its wholly-owned subsidiary, MarkWest, and Antero Midstream
Partners L.P. (“Antero Midstream”) formed a strategic joint venture to support the development of Antero
Resources Corporation’s extensive Marcellus Shale acreage in the prolific rich-gas corridor of West Virginia. In
connection with this transaction, MarkWest contributed approximately $134 million of assets currently under
construction at
the Sherwood Complex and Antero Midstream made an initial capital contribution of
approximately $154 million.
In the fourth quarter of 2016, Speedway and Pilot Flying J finalized the formation of a joint venture consisting of
123 travel plazas, primarily in the Southeast United States. The new entity, PFJ Southeast, consisted of 41
existing locations contributed by Speedway and 82 locations contributed by Pilot Flying J, all of which carry
either the Pilot or Flying J brand and are operated by Pilot Flying J. Our non-cash contribution was $272 million
based on the book value of the assets we contributed to the joint venture.
66
On September 1, 2016, Enbridge Energy Partners announced that its affiliate, North Dakota Pipeline, would
withdraw certain pending regulatory applications for the Sandpiper pipeline project and that the project would be
deferred indefinitely. These decisions were considered to indicate an impairment of the costs capitalized to date
on the project. We made contributions of $14 million to North Dakota Pipeline during the year ended
December 31, 2016 and have contributed $301 million since project inception to fund our share of the
construction costs for the project. As the operator of North Dakota Pipeline, which owns the investments made to
date in the Sandpiper pipeline project, and the entity responsible for maintaining its financial records, Enbridge
Energy Partners completed a fixed asset impairment analysis as of August 31, 2016, in accordance with ASC
Topic 360, to determine the fixed asset impairment charge. Based on the estimated liquidation value of the fixed
assets, an impairment charge was recorded by North Dakota Pipeline. Based on our 37.5 percent ownership of
North Dakota Pipeline, we recognized approximately $267 million of this charge in the third quarter of 2016
through “Income (loss) from equity method investments” on the accompanying consolidated statements of
income. See Item 8. Financial Statements and Supplementary Data — Note 17 to the for information regarding
the charge.
On February 15, 2017, MPLX closed on the previously announced transaction to acquire a partial, indirect equity
interest in the DAPL and ETCOP projects, collectively referred to as the Bakken Pipeline system, through a joint
venture with Enbridge Energy Partners. MPLX contributed $500 million of the $2 billion purchase price paid by
the joint venture to acquire a 36.75 percent indirect equity interest in the Bakken Pipeline system from ETP and
SXL. MPLX holds, through a subsidiary, a 25 percent interest in the joint venture, which equates to an
approximate 9.2 percent indirect equity interest in the Bakken Pipeline system. The Bakken Pipeline system is
currently expected to deliver in excess of 470 mbpd of crude oil from the Bakken/Three Forks production area in
North Dakota to the Midwest through Patoka, Illinois and ultimately to the Gulf Coast. Furthermore, MPC
expects to become a committed shipper on the Bakken Pipeline system under terms of an on-going open season.
In connection with closing the transaction with ETP and SXL, Enbridge Energy Partners canceled MPC’s
transportation services agreement with respect to the Sandpiper pipeline project and released MPC from paying
any termination fee per that agreement.
We currently have indirect ownership interests in two ocean vessel joint ventures with Crowley, which were
established to own and operate Jones Act vessels in petroleum product service. We have invested a total of
$189 million in these two ventures as described further below.
In September 2015, we acquired a 50 percent ownership interest in a joint venture, Crowley Ocean Partners, with
Crowley. The joint venture owns and operates four new Jones Act product tankers, three of which are leased to
MPC. Two of the vessels were delivered in 2015 and the remaining two were delivered in 2016. During 2016, we
contributed $69 million in connection with the delivery of the third and fourth vessels. We have contributed a
total of $141 million for the four vessels.
In May 2016, MPC and Crowley formed a new ocean vessel joint venture, Crowley Coastal Partners, in which
MPC has a 50 percent ownership interest. MPC and Crowley each contributed their 50 percent ownership in
Crowley Ocean Partners, discussed above, into Crowley Coastal Partners. In addition, we contributed $48 million
in cash and Crowley contributed its 100 percent ownership interest in Crowley Blue Water Partners to Crowley
Coastal Partners. Crowley Blue Water Partners is an entity that owns and operates three 750 Series ATB vessels
that are leased to MPC. We account for our 50 percent interest in Crowley Coastal Partners as part of our
Midstream segment using the equity method of accounting.
See Item 8. Financial Statements and Supplementary Data – Note 6 for additional information on Crowley
Coastal Partners as a VIE and Note 25 for information regarding our conditional guarantee of the indebtedness of
Crowley Ocean Partners and Crowley Blue Water Partners.
On December 4, 2015, MPLX merged with MarkWest, whereby MarkWest became a wholly-owned subsidiary
of MPLX. Each common unit of MarkWest issued and outstanding immediately prior to the effective time of the
67
MarkWest Merger was converted into a right to receive 1.09 common units of MPLX representing limited
partner interests in MPLX, plus a one-time cash payment of $6.20 per unit. Each Class B unit of MarkWest
outstanding immediately prior to the merger was converted into the right to receive one Class B unit of MPLX
having substantially similar rights, including conversion and registration rights, and obligations the Class B units
of MarkWest had immediately prior to the merger. At closing, we contributed $1.23 billion in cash to MPLX to
pay the cash consideration to MarkWest common unitholders. We will contribute an additional
total of
$50 million in cash to MPLX for the cash consideration to be paid upon the conversion of the MPLX Class B
units to MPLX common units in equal installments, the first $25 million of which was paid in July 2016 and the
second $25 million of which will be paid in July 2017. These contributions are with respect to MPC’s existing
interests in MPLX (including IDRs) and not in consideration of new units or other equity interest in MPLX. We
assigned the total consideration transferred of $8.61 billion, including the $7.33 billion fair value of the equity
consideration and the $1.28 billion of cash contributions, to the fair value of the assets acquired and liabilities
and noncontrolling interest assumed in the MarkWest Merger, with the excess recorded as goodwill. During the
first quarter of 2016, the preliminary fair value measurements of assets acquired and liabilities assumed recorded
in the 2015 year-end financial statements were revised based on additional analysis. These adjustments to the fair
values of property, plant and equipment, intangibles and equity investments, among other items, resulted in an
offsetting reduction to goodwill of approximately $241 million. As a result, we recognized total assets acquired
including $8.52 billion of property plant and equipment and $2.60 billion of equity
of $11.91 billion,
investments, and total liabilities and noncontrolling interests assumed of $5.51 billion, including $4.57 billion of
assumed debt. Goodwill is not amortized, but rather is tested for impairment annually or more frequently if
warranted due to events or changes in circumstances.
MPLX recorded an impairment charge of approximately $129 million in the first quarter of 2016 to impair a
portion of the $2.21 billion of goodwill, as adjusted, recorded in connection with the MarkWest Merger. In the
second quarter of 2016, MPLX completed its purchase price allocation, which resulted in an additional
$1 million of impairment expense that would have been recorded in the first quarter of 2016 had the purchase
price allocation been completed as of that date. This adjustment to the impairment expense was the result of
completing an evaluation of the deferred tax liabilities associated with the MarkWest Merger and their impact on
the resulting goodwill that was recognized. See the Critical Accounting Estimates – Impairment Assessments of
Long-Lived Assets, Intangible Assets, Goodwill and Equity Investments section for a discussion of recent
circumstances which may impact the assessment of this goodwill. Our financial results and operating statistics
reflect the results of MarkWest operations from the date of the acquisition in the Midstream segment.
Consistent with our strategy to grow our midstream business, the MarkWest Merger combines one of the nation’s
largest processors of natural gas and the largest processor and fractionator in the Marcellus and Utica shale
regions with a rapidly growing crude oil and refined products logistics partnership sponsored by MPC. The
complementary aspects of the highly diverse asset base of MarkWest, MPLX and MPC provide significant
additional opportunities across multiple segments of the hydrocarbon value chain. The combined entity will
further MarkWest’s leading midstream presence in the Marcellus and Utica shales by allowing it to pursue
additional midstream projects, which should allow producer customers to achieve superior value for their
growing production in these important shale regions.
On September 30, 2014, we acquired from Hess all of its retail locations, transport operations and shipper history
on various pipelines, including approximately 40 mbpd on Colonial Pipeline, for $2.82 billion. We refer to these
assets as “Hess’ Retail Operations and Related Assets” and substantially all of these assets are part of our
Speedway segment. This acquisition significantly expanded our Speedway presence from nine to 22 states
throughout the East Coast and Southeast consistent with our strategy to grow higher-valued, more stable cash
flow businesses. This acquisition also enables us to further leverage our integrated refining and transportation
operations, providing an outlet for assured sales from our refining system. The transaction was funded with a
combination of debt and available cash. Our financial results and operating statistics reflect the results for Hess’
Retail Operations and Related Assets in our Speedway segment from the date of the acquisition.
68
In July 2014, we exercised our option to acquire a 35 percent ownership interest in Enbridge Inc.’s SAX pipeline
which runs from Flanagan, Illinois to Patoka, Illinois. This option resulted from our agreement to be the anchor
shipper on the SAX pipeline. During 2016, we made contributions of $32 million to Illinois Extension Pipeline to
fund our portion of the construction costs for the SAX project. We have contributed $299 million since project
inception. The pipeline became operational in December 2015. Our investment in the pipeline is included in our
Midstream segment.
In March 2014, we acquired from Chevron Raven Ridge Pipe Line Company an additional seven percent interest
in Explorer for $77 million, bringing our ownership interest to 25 percent. Due to this increase in our ownership
percentage, we now account for our investment in Explorer using the equity method of accounting as part of our
Midstream segment and report Explorer as a related party. Explorer owns approximately 1,900 miles of refined
products pipeline from Port Arthur, Texas to Hammond, Indiana.
See Item 8. Financial Statements and Supplementary Data – Note 5 for additional information on these
acquisitions and investments.
Share Repurchases
Since January 1, 2012, our board of directors has approved $10.0 billion in total share repurchase authorizations
and we have repurchased a total of $7.44 billion of our common stock, leaving $2.56 billion available for
repurchases as of December 31, 2016. Under these authorizations, we have acquired 202 million shares at an
average cost per share of $36.77.
Liquidity
As of December 31, 2016, we had cash and cash equivalents of $887 million and no borrowings or letters of
credit outstanding under our $3.5 billion bank revolving credit facilities or under our $750 million trade
receivables securitization facility (“trade receivables facility”). As of December 31, 2016, eligible trade
receivables supported borrowings of $684 million under the trade receivable facility. As of December 31, 2016,
we do not have any commercial paper borrowings outstanding. We do not intend to have outstanding commercial
paper borrowings in excess of available capacity under our bank revolving credit facilities. MPLX had no
borrowings outstanding under its $2 billion revolving credit agreement as of December 31, 2016.
The above discussion contains forward-looking statements with respect to the business and operations of MPC,
including our proposed strategic actions to enhance shareholder value, our growth and vertical integration
opportunities with respect to our midstream assets, the ATM Program and MPLX’s purchase of the Ozark
pipeline. Factors that could impact our proposed strategic actions include, but are not limited to, the time, costs
and ability to obtain regulatory or other approvals and consents and otherwise consummate the strategic actions
discussed herein; the satisfaction or waiver of conditions in the agreements governing the strategic actions
discussed herein; our ability to achieve the strategic and other objectives related to the strategic actions discussed
herein; the impact of adverse market conditions affecting MPC’s and MPLX’s midstream businesses; adverse
changes in laws including with respect to tax and regulatory matters; inability to agree with the MPLX conflicts
committee with respect to the timing of and value attributed to assets identified for dropdown; Factors that could
affect our growth and vertical integration opportunities with respect to our midstream assets include, but are not
limited to, volatility in and/or degradation of market and industry conditions, our ability to implement and realize
the benefits and synergies of these opportunities, availability of liquidity, actions taken by competitors,
regulatory approvals and operating performance. Factors that could affect the ATM Program and the timing of
any issuances under the ATM Program include, but are not limited to, market conditions, availability of liquidity
and the market price of MPLX’s common units. Factors that could affect MPLX’s purchase of the Ozark pipeline
include, but are not limited to, the parties’ ability to satisfy closing conditions. These factors, among others,
could cause actual results to differ materially from those set forth in the forward-looking statements. For
additional information on forward-looking statements and risks that can affect our business, see “Disclosures
Regarding Forward-Looking Statements” and Item 1A. Risk Factors in this Annual Report on Form 10-K.
69
Overview of Segments
Refining & Marketing
Refining & Marketing segment income from operations depends largely on our Refining & Marketing gross
margin and refinery throughputs.
Our Refining & Marketing gross margin is the difference between the prices of refined products sold and the
costs of crude oil and other charge and blendstocks refined, including the costs to transport these inputs to our
refineries and the costs of products purchased for resale. The crack spread is a measure of the difference between
market prices for refined products and crude oil, commonly used by the industry as a proxy for the refining
margin. Crack spreads can fluctuate significantly, particularly when prices of refined products do not move in the
same relationship as the cost of crude oil. As a performance benchmark and a comparison with other industry
participants, we calculate Midwest (Chicago) and USGC crack spreads that we believe most closely track our
operations and slate of products. LLS prices and a 6-3-2-1 ratio of products (6 barrels of LLS crude oil producing
3 barrels of unleaded regular gasoline, 2 barrels of ultra-low sulfur diesel and 1 barrel of three percent residual
fuel oil) are used for these crack-spread calculations.
Our refineries can process significant amounts of sour crude oil, which typically can be purchased at a discount
to sweet crude oil. The amount of this discount, the sweet/sour differential, can vary significantly, causing our
Refining & Marketing gross margin to differ from crack spreads based on sweet crude oil. In general, a larger
sweet/sour differential will enhance our Refining & Marketing gross margin.
Future crude oil differentials will be dependent on a variety of market and economic factors, as well as U.S.
energy policy.
The following table provides sensitivities showing an estimated change in annual net income due to potential
changes in market conditions.
(In millions, after-tax)
LLS 6-3-2-1 crack spread sensitivity(a) (per $1.00/barrel change)
Sweet/sour differential sensitivity(b) (per $1.00/barrel change)
LLS-WTI differential sensitivity(c) (per $1.00/barrel change)
Natural gas price sensitivity(d) (per $1.00/million British thermal unit change)
$ 450
225
80
130
(a) Weighted 40 percent Chicago and 60 percent USGC LLS 6-3-2-1 crack spreads and assumes all other differentials and pricing
relationships remain unchanged.
LLS (prompt) — [delivered cost of sour crude oil: Arab Light, Kuwait, Maya, Western Canadian Select and Mars].
(b)
(c) Assumes approximately 20 percent of crude oil throughput volumes are WTI-based domestic crude oil.
(d)
This is consumption based exposure for our Refining & Marketing segment and does not include the sales exposure for our Midstream
segment.
In addition to the market changes indicated by the crack spreads, the sweet/sour differential and the LLS to WTI
differential, our Refining & Marketing gross margin is impacted by factors such as:
•
•
•
•
•
•
the selling prices realized for refined products;
the types of crude oil and other charge and blendstocks processed;
our refinery yields;
the cost of products purchased for resale;
the impact of commodity derivative instruments used to hedge price risk; and
the potential impact of LCM adjustments to inventories in periods of declining prices.
70
Inventories are stated at the lower of cost or market. Costs of crude oil, refinery feedstocks and refined products
are stated under the LIFO inventory costing method and aggregated on a consolidated basis for purposes of
assessing if the cost basis of these inventories may have to be written down to market values. At December 31,
2015, costs of inventories on a consolidated basis exceeded market value resulting in an LCM charge to cost of
revenues of $370 million, of which $345 million was allocated to our Refining & Marketing segment. As of
June 30, 2016, market value exceeded cost and we reversed the LCM inventory reserve resulting in a benefit to
cost of revenues for the year ended December 31, 2016. At December 31, 2016, market values for refined
products continue to exceed their cost basis and, therefore, there is no LCM inventory market valuation reserve at
the end of the year. Based on movements of refined product prices, future inventory valuation adjustments could
have a negative effect to earnings. Such losses are subject to reversal in subsequent periods if prices recover.
Refining & Marketing segment income from operations is also affected by changes in refinery direct operating
costs, which include turnaround and major maintenance, depreciation and amortization and other manufacturing
expenses. Changes in manufacturing costs are primarily driven by the cost of energy used by our refineries,
including purchased natural gas, and the level of maintenance costs. Planned major maintenance activities, or
turnarounds, requiring temporary shutdown of certain refinery operating units, are periodically performed at each
refinery. The following table lists the refineries that had significant planned turnaround and major maintenance
activities for each of the last three years.
Year Refinery
2016 Galveston Bay, Garyville and Robinson
2015 Catlettsburg, Galveston Bay, Garyville and Robinson
2014 Catlettsburg, Galveston Bay, Garyville and Robinson
The table below sets forth the location and daily crude oil refining capacity of each of our refineries at
December 31 of each year.
Refinery
Garyville, Louisiana
Galveston Bay, Texas City, Texas
Catlettsburg, Kentucky
Robinson, Illinois
Detroit, Michigan
Canton, Ohio
Texas City, Texas
Total
Speedway
Crude Oil Refining Capacity (mbpcd)
2014
2015
2016
543
459
273
231
132
93
86
539
459
273
212
132
93
86
522
451
242
212
130
90
84
1,817
1,794
1,731
Our retail marketing gross margin for gasoline and distillate, which is the price paid by consumers less the cost of
refined products, including transportation, consumer excise taxes and bankcard processing fees, impacts the
Speedway segment profitability. Gasoline and distillate prices are volatile and are impacted by changes in supply
and demand. Numerous factors impact gasoline and distillate demand throughout the year, including local
competition, seasonal demand fluctuations, the available wholesale supply, the level of economic activity in our
marketing areas and weather conditions. PADD 2 estimated 2016 gasoline demand grew for the fourth
consecutive year to a record level, up 1.8 percent year over year in 2016, and 1.2 percent above the former record
set in 2006. Continuing economic growth and year-on-year declines in prices supported gasoline demand in most
71
of the U.S., more than offsetting fleet fuel efficiency gains. Estimated gasoline demand in PADD 1, however,
posted a small decline of 0.1 percent year over year in 2016 as prices increased year over year in the last four
months of the year-exacerbated by Colonial Pipeline disruptions in September and late October. Distillate
demand in 2016 faced enormous headwinds as a much warmer than normal first quarter suppressed heating oil
demand and rail traffic (total carloads and intermodal) fell to a six-year low for the year. PADD 1 estimated 2016
distillate demand was down 5.8 percent year over year to a four year low, pulled down by a first quarter that was
down nearly 15 percent year over year. PADD 2 distillate demand is estimated down 2.0 percent year over year,
also a four year low. The gross margin on merchandise sold at our convenience stores historically has been less
volatile and has contributed substantially to Speedway’s gross margin. More than half of Speedway’s gross
margin was derived from merchandise sales in 2016. Speedway’s convenience stores offer a wide variety of
merchandise, including prepared foods, beverages and non-food items.
Inventories are carried at the lower of cost or market value. Costs of crude oil, refinery feedstocks and refined
products are stated under the LIFO inventory costing method and aggregated on a consolidated basis for purposes
of assessing if the cost basis of these inventories may have to be written down to market values. As of
December 31, 2015, costs of inventories on a consolidated basis exceeded market value resulting in an LCM
charge to cost of revenues of $370 million, of which $25 million was allocated to our Speedway segment. As of
June 30, 2016, market value exceeded cost and we reversed the LCM inventory reserve resulting in a benefit to
cost of revenues for the year ended December 31, 2016. As of December 31, 2016, market values for refined
products continue to exceed their cost basis and, therefore, there is no LCM inventory market valuation reserve at
the end of the year. Based on movements of refined product prices, future inventory valuation adjustments could
have a negative effect to earnings. Such losses are subject to reversal in subsequent periods if prices recover.
Midstream
NGL and natural gas prices are volatile and are impacted by changes in fundamental supply and demand, as well
as market uncertainty, availability of NGL transportation and fractionation capacity and a variety of additional
factors. Our Midstream segment profitability is affected by prevailing commodity prices primarily as a result of
processing or conditioning at our own or third-party processing plants, purchasing and selling or gathering and
transporting volumes of natural gas at index-related prices and the cost of third-party transportation and
fractionation services. To the extent that commodity prices influence the level of natural gas drilling volumes by
our producer customers, such prices also affect Midstream segment profitability.
The profitability of our pipeline transportation operations included in our Midstream segment, primarily depends
on tariff rates and the volumes shipped through the pipelines. A majority of the crude oil and refined product
shipments on our common carrier pipelines serve our Refining & Marketing segment. The volume of crude oil
that we transport is directly affected by the supply of, and refiner demand for, crude oil in the markets served
directly by our crude oil pipelines. Key factors in this supply and demand balance are the production levels of
crude oil by producers in various regions or fields,
the availability and cost of alternative modes of
transportation,
the volumes of crude oil processed at refineries and refinery and transportation system
maintenance levels. The volume of refined products that we transport is directly affected by the production levels
of, and user demand for, refined products in the markets served by our refined product pipelines. In most of our
markets, demand for gasoline and distillate peaks during the summer driving season, which extends from May
through September of each year, and declines during the fall and winter months. As with crude oil, other
transportation alternatives and system maintenance levels influence refined product movements.
72
Results of Operations
Consolidated Results of Operations
(In millions)
2016
2015
Revenues and other income:
Sales and other operating revenues (including
2016 vs.
2015
Variance
2015 vs.
2014
Variance
2014
consumer excise taxes)
$
63,339
$
72,051
$
(8,712)
$
97,817
$
(25,766)
Income (loss) from equity method investments
Net gain on disposal of assets
Other income
(185)
32
178
88
7
112
(273)
25
66
153
21
111
(65)
(14)
1
Total revenues and other income
63,364
72,258
(8,894)
98,102
(25,844)
Costs and expenses:
Cost of revenues (excludes items below)
49,170
55,583
(6,413)
83,770
(28,187)
Purchases from related parties
Inventory market valuation adjustment
Consumer excise taxes
Impairment expense
Depreciation and amortization
Selling, general and administrative expenses
Other taxes
Total costs and expenses
Income from operations
Net interest and other financial income (costs)
Income before income taxes
Provision for income taxes
Net income
Less net income (loss) attributable to:
Redeemable noncontrolling interest
Noncontrolling interests
509
(370)
7,506
130
2,001
1,605
435
60,986
2,378
(556)
1,822
609
1,213
308
370
7,692
144
1,502
1,576
391
67,566
4,692
(318)
4,374
1,506
2,868
41
(2)
-
16
201
(740)
(186)
(14)
499
29
44
(6,580)
(2,314)
(238)
(2,552)
(897)
(1,655)
41
(18)
505
-
6,685
-
1,326
1,375
390
94,051
4,051
(216)
3,835
1,280
2,555
-
31
Net income attributable to MPC
$
1,174
$
2,852
$
(1,678)
$
2,524
$
(197)
370
1,007
144
176
201
1
(26,485)
641
(102)
539
226
313
-
(15)
328
Net income attributable to MPC decreased $1.68 billion in 2016 compared to 2015 and increased $328 million in
2015 compared to 2014, primarily due to our Refining & Marketing segment income from operations, which
decreased $2.54 billion in 2016 compared to 2015 and increased $548 million in 2015 compared to 2014. The
decrease in income from operations in 2016 for our Refining & Marketing segment was partially offset by
increases in our Midstream and Speedway segments. Income from operations for 2016 includes a non-cash
benefit of $370 million related to the reversal of the Company’s LCM inventory valuation reserve and
impairment charges of $356 million related to equity method investments and $130 million recorded by MPLX
to impair a portion of the $2.21 billion of goodwill recorded in connection with the MarkWest Merger. Income
from operations for 2015 includes a non-cash $370 million LCM inventory valuation charge and an impairment
charge of $144 million. See Segment Results for additional information.
Sales and other operating revenues (including consumer excise taxes) decreased $8.71 billion in 2016 compared
to 2015 and $25.77 billion in 2015 compared to 2014. The decrease in 2016 was primarily due to lower refined
product sales prices and sales volumes. The decrease in 2015 was primarily due to lower refined product sales
73
prices, partially offset by increases in refined product sales volumes. MPC consolidated refined product sales
decreased 32 mbpd in 2016 compared to 2015 and increased 163 mbpd in 2015 compared to 2014.
Income (loss) from equity method investments decreased $273 million in 2016 compared to 2015 and
$65 million in 2015 compared to 2014. The decrease in 2016 was primarily due to impairment charges related to
equity method investments of $356 million, partially offset by increases in income from new and existing
pipeline and marine equity investments. The decrease in 2015 was primarily due to decreases in income from our
ethanol affiliates of $69 million, mainly due to lower ethanol prices.
Net gain on disposal of assets increased $25 million in 2016 compared to 2015 and decreased $14 million in
2015 compared to 2014. The increase in 2016 was primarily due to the sale of certain Speedway locations during
the year. The decrease in 2015 was primarily due to the sale of two terminals and related terminal assets in 2014.
Other income increased $66 million in 2016 compared to 2015. The increase in 2016 was primarily due to the
inclusion of a full year of MarkWest other income and increased RIN sales. Other income in 2015 was
comparable to 2014.
Cost of revenues decreased $6.41 billion in 2016 compared to 2015 and $28.19 billion in 2015 compared to
2014. The decrease in 2016 was primarily due to:
•
•
a decrease in refined product cost of sales of $6.52 billion, primarily due to a decrease in our average
crude oil costs of $7.26 per barrel; partially offset by
an increase in refinery direct operating costs of $407 million, or $0.72 per barrel of total refinery
throughput, primarily due to significantly higher turnaround activity in 2016 as compared to a lower
than normal level of turnaround costs in 2015.
The decrease in 2015 was primarily due to:
•
•
a decrease in refined product cost of sales of $28.67 billion, primarily due to a decrease in our average
crude oil costs of $43.97 per barrel, partially offset by an increase in refined product sales volumes;
and
decreases in refinery direct operating costs of $726 million, or $1.40 per barrel of total refinery
throughput, primarily due to significantly lower turnaround activity in 2015 and decreases in other
manufacturing costs.
Purchases from related parties increased $201 million in 2016 compared to 2015 and decreased $197 million in
2015 compared 2014. The increase in 2016 was primarily due to:
•
•
•
increases in volumes transported by Illinois Extension Pipeline, which is a pipeline affiliate that
became operational in December of 2015, of $106 million;
increases in transportation services provided by Crowley Ocean Partners, which is a new marine joint
venture established in September of 2015, of $46 million; and
increases in transportation services provided by Crowley Blue Water Partners, which is a new marine
joint venture established in May of 2016, of $37 million.
The decrease in purchases from related parties in 2015 was primarily due to decreases in prices and volumes of
ethanol purchases from The Andersons Marathon Ethanol LLC, The Andersons Clymers Ethanol LLC and The
Andersons Albion Ethanol LLC, our affiliated ethanol operations, of $149 million, decreases in purchases from
LOOP of $36 million and Explorer of $19 million.
Inventory market valuation adjustment decreased costs and expenses by $740 million in 2016 compared to 2015
and increased costs and expenses by $370 million in 2015 compared to 2014. The LCM inventory reserve
recorded in 2015 of $370 million was reversed in 2016 due to increases in refined product prices during the
second quarter of 2016 resulting in reductions to cost of revenues of $370 million in 2016.
74
Consumer excise taxes decreased $186 million in 2016 compared to 2015 and increased $1.01 billion in 2015
compared to 2014. The decrease in 2016 was primarily due to a decrease in taxable refined product sales volumes
and tax rates in certain jurisdictions. The increase in 2015 was primarily due to increases in taxable refined
product sales volumes, including the effects of the acquisition of Hess’ Retail Operations and Related Assets.
Impairment expense decreased $14 million in 2016 compared to 2015 and increased $144 million in 2015
compared to 2014. Impairment expense in 2016 reflects a $130 million charge recorded by MPLX to impair a
portion of the $2.21 billion of goodwill recorded in connection with the MarkWest Merger. In 2015, an
impairment charge of $144 million was recorded related to the cancellation of the ROUX project at our Garyville
refinery. Impairments related to equity method investments were recorded to Income (loss) from equity method
investments and discussed above.
Depreciation and amortization increased $499 million in 2016 compared to 2015 and $176 million in 2015
compared to 2014. The increase in 2016 was primarily due to the depreciation of the fair value of the assets
acquired in connection with the MarkWest Merger. The increase in 2015 was primarily due to the depreciation of
the fair value of the assets acquired in connection with the acquisition of Hess’ Retail Operations and Related
Assets.
Selling, general and administrative expenses increased $29 million in 2016 compared to 2015 and $201 million
in 2015 compared to 2014. The increase in 2016 was primarily due to the inclusion of MarkWest expenses,
largely offset by decreases in contract services and other selling, general and administrative expenses. The
increase in 2015 was primarily due to increases in employee benefit costs, contract services and additional
expenses related to the convenience stores acquired from Hess along the East Coast and Southeast, partially
offset by a decrease in pension settlement expenses.
Other taxes increased $44 million in 2016 compared to 2015. The increase in 2016 was primarily due to the
inclusion of MarkWest’s taxes. Other taxes in 2015 were comparable to 2014.
Net interest and other financial costs increased $238 million in 2016 compared to 2015 and $102 million in 2015
compared to 2014. The increase in 2016 was primarily due to interest on the debt assumed in the MarkWest
Merger. The increase in 2015 was primarily due to senior notes issued by MPC in September 2014 to finance the
acquisition of Hess’ Retail Operations and Related Assets, higher levels of borrowings on MPLX’s bank
revolving credit facility used to fund the acquisition of Pipe Line Holdings and interest on the debt assumed from
MarkWest. We capitalized interest of $63 million in 2016, $37 million in 2015 and $27 million in 2014. See
Item 8. Financial Statements and Supplementary Data – Note 19 for further details.
Provision for income taxes decreased $897 million in 2016 compared to 2015 and increased $226 million in 2015
compared to 2014, primarily due to changes in our income before income taxes, which decreased $2.55 billion in
2016 compared to 2015 and increased $539 million in 2015 compared to 2014. The effective tax rates of
33 percent, 34 percent and 33 percent in 2016, 2015 and 2014, respectively, are slightly less than the U.S.
statutory rate of 35 percent primarily due to certain permanent benefit differences, including the domestic
manufacturing deduction, partially offset by state and local tax expense. See Item 8. Financial Statements and
Supplementary Data – Note 12 for further details.
75
Segment Results
Revenues
Revenues are summarized by segment in the following table.
(In millions)
Refining & Marketing
Speedway
Midstream
Segment revenues
Items included in both revenues and costs:
Consumer excise taxes
2016
2015
2014
$
53,817
$
64,198
$
18,286
2,636
74,739
7,506
$
$
19,693
964
84,855
7,692
$
$
$
$
91,733
16,932
824
109,489
6,685
Refining & Marketing segment revenues decreased $10.38 billion in 2016 compared to 2015 and $27.54 billion
in 2015 compared to 2014. The decrease in 2016 was primarily due to lower refined product sales prices and
volumes. The decrease in 2015 was primarily due to lower product sales prices, partially offset by an increase in
refined product sales volumes. The table below shows our Refining & Marketing segment refined product sales
volumes and prices.
Refining & Marketing segment:
Refined product sales volumes (thousands of barrels per day)(a)
Refined product sales destined for export (thousands of barrels per day)
2,259
296
2,289
319
Average refined product sales prices (dollars per gallon)
$
1.47 $
1.74 $
2,125
275
2.71
2016
2015
2014
(a)
Includes intersegment sales and sales destined for export.
The table below shows the average refined product benchmark prices for our marketing areas.
(Dollars per gallon)
Chicago spot unleaded regular gasoline
Chicago spot ultra-low sulfur diesel
USGC spot unleaded regular gasoline
USGC spot ultra-low sulfur diesel
2016
2015
2014
$
1.33 $
1.34
1.33
1.32
$
1.60
1.62
1.55
1.58
2.55
2.80
2.49
2.71
Refining & Marketing intersegment sales to our Speedway segment decreased $1.44 billion in 2016 compared to
2015 and increased $1.11 billion in 2015 compared to 2014. The decrease in 2016 was primarily due to a
decrease in average refined product sales prices, partially offset by an increase in refined product sales volumes.
The increases in 2015 were primarily due to sales to the approximate 1,245 convenience stores acquired in
September 2014 along the East Coast and Southeast.
Refining & Marketing intersegment sales to Speedway:
Intersegment sales (in millions)
Refined product sales volumes (millions of gallons)
Average refined product sales prices (dollars per gallon)
76
2016
2015
2014
$
$
10,589 $
12,024 $
10,912
5,957
5,873
1.48 $
1.74 $
3,766
2.89
Speedway segment revenues decreased $1.41 billion in 2016 compared to 2015 and increased $2.76 billion in
2015 compared to 2014. The decrease in 2016 was due to a decrease in gasoline and distillate sales of
$1.52 billion primarily due to a decrease in gasoline and distillate selling prices of $0.27 per gallon. The increase
in 2015 was due to increases in gasoline and distillate sales of $1.43 billion and merchandise sales of
$1.27 billion. The increase in gasoline and distillate sales in 2015 was primarily due to a volume increase of
2.1 billion gallons, driven by an increase in the number of convenience stores, as noted in the table below,
partially offset by a decrease in gasoline and distillate selling prices of $0.89 per gallon. The increase in
merchandise sales in 2015 was primarily due to increases in the number of convenience stores and higher same
store sales.
The following table includes certain revenue and operating statistics for the Speedway segment.
Convenience stores at period-end(a)
Gasoline & distillate sales (millions of gallons)
Average gasoline & distillate sales prices (dollars per gallon)
Merchandise sales (in millions)
Same store gasoline sales volume (period over period)
Same store merchandise sales (period over period)(b)
2016
2015
2014
$
$
2,733
6,094
2.09
5,007
(0.4)%
3.2%
$
$
2,766
6,038
2.36
4,879
(0.3)%
4.1%
$
$
2,746
3,942
3.25
3,611
(0.7)%
5.0%
(a)
(b)
The 2014 year-end amount includes the convenience stores acquired from Hess on September 30, 2014.
Excludes cigarettes.
Midstream segment revenue increased $1.67 billion in 2016 compared to 2015 and $140 million in 2015
compared to 2014. The increases in 2016 and 2015 were primarily due to the inclusion of MarkWest’s operating
results in Midstream segment income following the merger with MPLX from the December 4, 2015 merger date.
The following table shows certain operating statistics for our Midstream segment as well as benchmark prices for
natural gas and NGLs.
Crude oil and refined product pipeline throughputs (mbpd)(a)
Gathering system throughput (MMcf/d)(b)
Natural gas processed (MMcf/d)(b)
C2 (ethane) + NGLs fractionated (mbpd)(b)
Natural Gas NYMEX HH ($ per MMBtu)(b)
C2 + NGL Pricing ($ per gallon)(b)(c)
2016
2,311
3,275
5,761
335
$ 2.55
$ 0.47
2015
2,191
3,075
5,468
307
$ 2.04
$ 0.40
2014
2,119
—
—
—
—
—
(a) On owned common-carrier pipelines, excluding equity method investments.
(b) Beginning December 4, 2015, which was the effective date of the MarkWest Merger.
(c) C2 + NGL pricing based on Mont Belvieu prices assuming an NGL barrel of approximately 35 percent ethane, 35 percent propane, six
percent Iso-Butane, 12 percent normal butane and 12 percent natural gasoline.
77
Income from Operations
Income from operations and income before income taxes by segment are summarized in the following table.
(In millions)
Income from operations by segment:
Refining & Marketing(a)
Speedway
Midstream(a)(b)
Items not allocated to segments:
Corporate and other unallocated items(a)(b)
Pension settlement expenses(c)
Impairment(d)
Income from operations
Net interest and other financial income (costs)
Income before income taxes
2016
2015
2014
$
1,543
$
4,086
$
3,538
734
871
(277)
(7)
(486)
2,378
(556)
673
380
(299)
(4)
(144)
4,692
(318)
544
342
(277)
(96)
-
4,051
(216)
$
1,822
$
4,374
$
3,835
(a)
(b)
(c)
(d)
In 2016, segment reporting was revised in connection with the contribution of MPC’s inland marine business to MPLX. The results of
the inland marine business are now presented in the Midstream segment. Previously, these results were reported in the Refining &
Marketing segment. Comparable prior period information has been recast to reflect this revised segment presentation.
Included in the Midstream segment for 2016, 2015 and 2014 are $11 million, $20 million and $19 million, respectively, of corporate
overhead expenses attributable to MPLX. These expenses are not currently allocated to other segments and are reported in Corporate and
other unallocated items.
See Item 8. Financial Statements and Supplementary Data – Note 22.
See Item 8. Financial Statements and Supplementary Data – Notes 15, 16 and 17.
Refining & Marketing segment income from operations decreased $2.54 billion in 2016 compared to 2015 and
increased $548 million in 2015 compared to 2014. Segment income in 2015 includes a $345 million non-cash charge
related to the Company’s LCM inventory reserve, which was reversed in 2016 due to increased refined product prices,
resulting in a non-cash benefit to segment income of $345 million. The favorable LCM inventory adjustment variance
was more than offset by the unfavorable effects of lower crack spreads and higher direct operating costs due to refinery
turnarounds. The increase in 2015 was primarily due to higher crack spreads, favorable effects of changes in market
structure on crude oil acquisition prices, more favorable net product price realizations compared to spot market
reference prices and lower direct operating costs. These favorable impacts were partially offset by higher crude oil and
feedstock acquisition costs relative to benchmark LLS crude oil, the unfavorable effect of lower commodity prices on
volumetric gains and an LCM inventory valuation charge of $345 million.
78
The following table presents certain market indicators that we believe are helpful in understanding the results of
our Refining & Marketing segment’s business.
(Dollars per barrel)
Chicago LLS 6-3-2-1 crack spread(a)(b)
USGC LLS 6-3-2-1 crack spread(a)
Blended 6-3-2-1 crack spread(a)(c)
LLS
WTI
LLS – WTI crude oil differential(a)
Sweet/Sour crude oil differential(a)(d)
2016
2015
2014
$
7.19
6.80
6.96
45.01
43.47
1.55
6.52
$
10.67
$
9.11
9.70
52.35
48.76
3.59
6.10
9.56
7.23
8.11
96.90
92.91
3.99
6.97
(a) All spreads and differentials are measured against prompt LLS.
(b) Calculation utilizes USGC three percent residual fuel oil price as a proxy for Chicago three percent residual fuel oil price.
(c) Blended Chicago/USGC crack spread is 40/60 percent in 2016, 38/62 percent in 2015 and 38/62 percent in 2014 based on MPC’s
refining capacity by region in each period.
(d)
LLS (prompt) – [delivered cost of sour crude oil: Arab Light, Kuwait, Maya, Western Canadian Select and Mars].
Based on the market indicators above and our refinery throughputs, we estimate the following impacts on
Refining & Marketing segment income from operations for 2016 compared to 2015 and for 2015 compared to
2014:
• The USGC LLS 6-3-2-1 crack spread decreased $2.31 per barrel in 2016 compared to 2015 which had
a negative impact on segment income of $1.13 billion and increased $1.88 per barrel in 2015 compared
to 2014 which had a positive impact on segment income of $940 million.
• The Chicago LLS 6-3-2-1 crack spread decreased $3.48 per barrel in 2016 compared to 2015 which
had a negative impact on segment income of $846 million and increased $1.11 per barrel in 2015
compared to 2014 which had a positive impact on segment income of $400 million.
• The sweet/sour crude oil differential increased $0.42 per barrel in 2016 compared to 2015 which had a
positive impact on segment income of $334 million and narrowed $0.87 per barrel in 2015 compared to
2014 which had a negative impact on segment income of $27 million.
• The LLS-WTI crude oil differential narrowed $2.04 per barrel in 2016 compared to 2015 resulting in a
negative impact on segment income of $260 million. The LLS-WTI crude oil differential narrowed
$0.40 per barrel in 2015 compared to 2014. This decrease was more than offset by an increase in
volume of WTI resulting in a positive impact on segment income of $6 million.
The market indicators shown above use spot market values and an estimated mix of crude purchases and product
sales. Differences in our results compared to these market indicators, including product price realizations, the
mix of crudes purchased and their costs, the effects of LCM inventory valuation adjustments, the effects of
market structure on our crude oil acquisition prices, and other items like refinery yields and other feedstock
variances, had an estimated negative impact on Refining & Marketing segment income of $304 million in 2016
compared to 2015 and $1.03 billion in 2015 compared to 2014. The significant elements of the negative impact
for 2016 were unfavorable product price realizations and unfavorable crude acquisition costs relative to the
market indicators, partially offset by the reversal of the Company’s LCM inventory valuation reserve that was
recorded in 2015. The significant elements of the negative impact for 2015 were unfavorable crude oil
acquisition costs relative to the market
the unfavorable effect of lower commodity prices on
volumetric gains, the price differential of charge and blend stock relative to crude oil and the LCM inventory
valuation charge, partially offset by the effects of changes in market structure on our crude oil acquisition costs
and product price realizations.
indicators,
79
The cost of inventories of crude oil and refinery feedstocks, refined products and merchandise is determined
primarily under the LIFO method. In the second quarter of 2016, we had recognized the effects of an interim
liquidation of our refined products inventories which we did not expect to reinstate by year end resulting in a
pre-tax charge of approximately $54 million to income. Based on year end refined product inventories, which
were higher than inventories at the beginning of the year, we had a build in refined product inventories for 2016.
Therefore, we recognized the effects of this annual build in our refined products in the fourth quarter of 2016
which had the effect of reversing the second quarter charge. In the fourth quarter of 2015, we recorded a LIFO
charge of $45 million as a result of annual decreased levels in refined products and crude inventory volumes.
Since the LIFO costs for these inventory layers were based on 2014 costs, the liquidation resulted in a charge to
income. In the fourth quarter of 2014, we recognized annual builds in our refined product and crude inventories.
These builds were based on January 2014 costs which were significantly higher than fourth quarter 2014 costs
resulting in a benefit of approximately $240 million to income. For the full year, we recognized a LIFO charge of
$2 million in 2016 and $78 million in 2015 as compared to a LIFO benefit of $265 million in 2014.
The following table summarizes our refinery throughputs.
Refinery throughputs (thousands of barrels per day):
Crude oil refined
Other charge and blendstocks
Total
Sour crude oil throughput percent
WTI-priced crude oil throughput percent
2016
2015
2014
1,699
151
1,850
60
19
1,711
177
1,888
55
20
1,622
184
1,806
52
19
The following table includes certain key operating statistics for the Refining & Marketing segment.
Refining & Marketing gross margin (dollars per barrel)(a)
Refinery direct operating costs (dollars per barrel):(b)
Planned turnaround and major maintenance
Depreciation and amortization
Other manufacturing(c)
Total
2016
2015
2014
$
$
$
11.26
1.83
1.47
4.09
7.39
$
$
$
15.25
$
15.05
1.13
1.39
4.15
6.67
$
$
1.80
1.41
4.86
8.07
(a)
(b)
(c)
Sales revenue less cost of refinery inputs and purchased products, divided by total refinery throughputs. Excludes the LCM inventory
valuation adjustments.
Per barrel of total refinery throughputs.
Includes utilities, labor, routine maintenance and other operating costs.
Refinery direct operating costs increased $0.72 per barrel in 2016 compared to 2015 and decreased $1.40 per
barrel in 2015 compared to 2014. These changes in 2016 compared to 2015 and 2015 compared to 2014 include
an increase in planned turnaround and major maintenance costs of $0.70 per barrel and a decrease of $0.67 per
barrel, respectively, as well as decreases in other manufacturing costs of $0.06 per barrel and $0.71, respectively.
The increase in planned turnaround and major maintenance costs for 2016 are primarily attributable to higher
turnaround activity at the Galveston Bay, Garyville and Robinson refineries and a lower than normal schedule of
turnaround activity in 2015, partially offset by a decrease in turnaround activity at the Catlettsburg refinery. The
decrease in planned turnaround and major maintenance costs for 2015 was primarily attributable to lower
turnaround activity at the Galveston Bay, Robinson and Garyville refineries, partially offset by an increase in
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turnaround activity at the Detroit refinery. In 2016, the decrease in other manufacturing costs was primarily due
to lower routine maintenance costs, general and administrative expenses and waste costs. In 2015, the decrease in
other manufacturing costs was primarily attributable to lower energy costs and routine maintenance costs.
We purchase RINs to satisfy a portion of our RFS2 compliance. Our expenses associated with purchased RINs
were $288 million in 2016, $212 million in 2015 and $141 million in 2014. In 2015, we recorded a $46 million
charge to recognize increased estimated costs for compliance based on the renewable fuel standards for 2014 and
2015 proposed by the EPA in May 2015 and finalized in November 2015, particularly those for biomass-based
diesel and advanced biofuels. Excluding this charge, the increases in both years were primarily due to the effect
of increased purchases of biomass-based diesel RINs at increased prices. In 2015, this increase was partially
offset by decreased purchases of ethanol RINs at decreased prices.
Speedway segment income from operations increased $61 million in 2016 compared to 2015 and $129 million in
2015 compared to 2014. Segment income in 2015 includes a $25 million non-cash charge related to the
Company’s LCM inventory reserve, which was reversed in 2016 due to increased refined product prices,
resulting in a non-cash benefit to segment income of $25 million. In addition to the favorable LCM inventory
adjustment variance, the remaining increase during the year was primarily due to higher merchandise gross
margin of $67 million and gains from asset sales, partially offset by lower gasoline and distillate gross margin of
$91 million, or $0.0167 per gallon. The increase in 2015 was primarily due to an increases in our gasoline and
distillate gross margin of $401 million and our merchandise gross margin of $393 million, partially offset by
higher operating expenses. The increase in 2015 was primarily attributable the full year effect of the acquisition
of Hess’ Retail Operations and Related Assets on September 30, 2014. The increases in merchandise gross
margin in both years were related to a combination of higher merchandise and food sales and improved margins.
The following table includes sales volume and gross margin statistics for the Speedway segment.
Gasoline & distillate sales (millions of gallons)
Gasoline & distillate gross margin (dollars per gallon)(a)
Merchandise gross margin (in millions)
Merchandise gross margin percent
2016
6,094
0.1656
1,435
$
$
2015
6,038
0.1823
1,368
$
$
28.7%
28.0%
2014
3,942
0.1775
975
27.0%
$
$
(a)
The price paid by consumers less the cost of refined products, including transportation, consumer excise taxes and bankcard processing
fees, divided by gasoline and distillate sales volume. Excludes LCM inventory valuation adjustments.
Midstream segment income from operations increased $491 million in 2016 compared to 2015 and $38 million in
2015 compared to 2014. The increase in 2016 was primarily due to the inclusion of MarkWest’s operating results
following the merger with MPLX, as well as earnings from new and existing pipeline and marine equity
investments. The increase in 2015 was primarily due to the inclusion of the financial results of MarkWest, which
are reflected in Midstream segment income from the December 4, 2015 MarkWest Merger date, partially offset
by $30 million of transaction costs related to the acquisition.
Corporate and other unallocated expenses decreased $22 million in 2016 compared to 2015 and increased
$22 million in 2015 compared to 2014. The decrease in 2016 is primarily due to increased allocations of
corporate costs to the segments. The increase in 2015 was primarily due to a lower allocation of employee
benefit costs to the segments.
Unallocated items in 2016 also includes impairment charges of $486 million resulting from non-cash charges of
$267 million related to the indefinite deferral of the Sandpiper pipeline project, $130 million related to the
goodwill recognized in connection with the MarkWest Merger and $89 million related to an MPLX equity
method investment. Unallocated items in 2015 includes an impairment charge of $144 million recorded in the
third quarter of 2015 related to the cancellation of the ROUX project at our Garyville refinery. See Item 8.
Financial Statements and Supplementary Data – Note 17 for additional information on the impairment charges.
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We recorded pretax pension settlement expenses of $7 million in 2016, $4 million in 2015 and $96 million in
2014 resulting from the level of employee lump sum retirement distributions that occurred during these years.
Liquidity and Capital Resources
Cash Flows
Our cash and cash equivalents balance was $887 million at December 31, 2016 compared to $1.13 billion at
December 31, 2015. Net cash provided by (used in) operating activities, investing activities and financing
activities for the past three years is presented in the following table.
(In millions)
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Total
2016
2015
2014
$
3,986
$
4,061
$
3,110
(2,941)
(1,285)
(3,441)
(4,543)
(987)
635
$
(240)
$
(367)
$
(798)
Net cash provided by operating activities decreased $75 million in 2016 compared to 2015, primarily due to
decreased operating results, partially offset by favorable changes in working capital of $1.22 billion compared to
2015. Net cash provided by operating activities increased $951 million in 2015 compared to 2014, primarily due
to increased operating results, partially offset by unfavorable changes in working capital of $330 million
compared to 2014. The above changes in working capital exclude changes in short-term debt.
For 2016, changes in working capital were a net $200 million source of cash, primarily due to an increase in
accounts payable and accrued liabilities, partially offset by increases in current receivables and inventories.
Changes from December 31, 2015 to December 31, 2016 per the consolidated balance sheets, excluding the
impact of acquisitions, were as follows:
• Accounts payable increased $850 million from year-end 2015, primarily due to higher crude oil
payable prices.
• Current receivables increased $690 million from year-end 2015, primarily due to higher refined
product and crude oil receivable prices.
• Excluding the change in the Company’s LCM inventory valuation reserve of $370 million, inventories
increased $61 million from year-end 2015, primarily due to higher crude oil and refined product
inventory volumes.
For 2015, changes in working capital were a net $1.02 billion use of cash, primarily due to a decrease in accounts
payable and accrued liabilities, partially offset by decreases in current receivables and inventories. Accounts
payable decreased $1.92 billion from year-end 2014, primarily due to lower crude oil payable prices and
volumes; current receivables decreased $1.13 billion from year-end 2014, primarily due to lower refined product
and crude oil receivable prices and lower crude oil receivable volumes; and inventories decreased $47 million
from year-end 2014, excluding a $370 million LCM inventory valuation charge, primarily due to lower refined
product and crude oil inventory volumes.
For 2014, changes in working capital were a net $694 million use of cash, primarily due to a decrease in accounts
payable and accrued liabilities and an increase in inventories, partially offset by a decrease in current receivables.
Excluding the impact of acquisitions, accounts payable decreased $1.65 billion from year-end 2013, primarily
due to lower crude oil payable prices, partially offset by higher crude oil payable volumes; inventories decreased
$796 million from year-end 2013, primarily due to higher refined product and crude oil inventory volumes; and
current receivables decreased $1.63 billion from year-end 2013, primarily due to lower refined product and crude
oil receivable prices.
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Cash flows used in investing activities decreased $500 million in 2016 compared to 2015 and $1.10 billion in
2015 compared to 2014. The investing activity is further discussed below.
The consolidated statements of cash flows exclude changes to the consolidated balance sheets that did not affect
cash. A reconciliation of additions to property, plant and equipment to total capital expenditures and investments
follows for each of the last three years.
(In millions)
2016
2015
2014
Additions to property, plant and equipment per consolidated statements of cash
flows
$
2,892
$
1,998
$
1,480
Non-cash additions to property, plant and equipment
Asset retirement expenditures
Increase (decrease) in capital accruals
Total capital expenditures
Acquisitions(a)
Investments in equity method investees
—
6
(127)
2,771
10
288
5
1
94
2,098
13,854
331
4
2
95
1,581
2,744
413
Total capital expenditures and investments
$
3,069
$
16,283
$
4,738
(a)
The 2016 acquisitions include purchase price adjustments related to the MarkWest Merger. The 2015 acquisitions include the MarkWest
Merger. The 2014 acquisitions include the acquisition of Hess’ Retail Operations and Related Assets. The acquisition numbers above
include property, plant and equipment, equity investments,
intangibles and goodwill. See Item 8. Financial Statements and
Supplementary Data – Note 5 for further details.
Capital expenditures and investments for each of the last three years are summarized by segment below.
(In millions)
Capital expenditures and investments:(a)(b)
Refining & Marketing
Speedway
Midstream
Corporate and Other(c)
Total
2016
2015
2014
$
1,101
$
1,045
$
1,043
303
1,521
144
501
14,545
192
2,981
604
110
$
3,069
$
16,283
$
4,738
(a) Capital expenditures include changes in capital accruals.
(b)
Includes $10 million in 2016 for purchase price adjustments related to the MarkWest Merger, $13.85 billion in 2015 for the MarkWest
Merger and $2.71 billion in 2014 for the acquisition of Hess’ Retail Operations and Related Assets. See Item 8. Financial Statements and
Supplementary Data – Note 5.
(c)
Includes capitalized interest of $63 million, $37 million and $27 million for 2016, 2015 and 2014, respectively.
The MarkWest Merger comprised 85 percent of our total capital expenditures and investments in 2015. The
acquisition of Hess’ Retail Operations and Related Assets comprised 57 percent of our total capital expenditures
and investments in 2014.
Cash provided by disposal of assets totaled $101 million, $21 million and $27 million in 2016, 2015 and 2014,
respectively. Cash provided in 2016 was primarily due the sale of Speedway assets in the normal course of
business.
83
Net investments were a use of cash of $262 million in 2016 compared to $327 million in 2015 and $404 million
in 2014. The change in 2016 compared to 2015 was primarily due to decreases in contributions to the SAX
pipeline project of $114 million, the Sandpiper pipeline project of $57 million and Crowley Ocean Partners of
$38 million, partially offset by increases in contributions to Crowley Coastal Partners of $82 million and MPLX
equity method investments of $74 million. The change in 2015 compared to 2014 was primarily due to a decrease
in contributions to the SAX pipeline project of $121 million and the 2014 investment in Explorer, partially offset
by contributions to Crowley Ocean Partners of $72 million.
Financing activities were a $1.29 billion use of cash in 2016, a $987 million use of cash in 2015 and a
$635 million source of cash in 2014.
Long-term debt borrowings and repayments were a net $1.42 billion use of cash in 2016 compared to a
$746 million source of cash in 2015 and a $3.22 billion source of cash in 2014. During 2016, MPLX used
proceeds from its issuance of the MPLX Preferred Units to repay amounts outstanding under the MPLX bank
revolving credit facility and MPC chose to prepay $500 million under its term loan. During 2015, we used
$763 million of the net proceeds from the issuance of $1.5 billion of MPC senior notes to extinguish our
obligation for the $750 million aggregate principal amount of senior notes due in 2016 and MPLX used proceeds
from its issuance of $500 million aggregate of principal amount of MPLX senior notes to repay $385 million
outstanding under the MPLX bank revolving credit facility. See Item 8. Financial Statements and Supplementary
Data – Note 19 for additional information on our long-term debt.
Cash proceeds from the issuance of MPLX common units were $776 million in 2016 and $221 million in 2014.
Cash proceeds from the issuance of MPLX Preferred Units was $984 million in 2016. See Item 8. Financial
Statements and Supplementary Data – Note 4 for further discussion of MPLX.
Cash used in common stock repurchases totaled $197 million in 2016, $965 million in 2015 and $2.13 billion in
2014 associated with the share repurchase plans authorized by our board of directors. The table below
summarizes our total share repurchases. See Item 8. Financial Statements and Supplementary Data – Note 9 for
further discussion of the share repurchase plans.
(In millions, except per share data)
Number of shares repurchased
Cash paid for shares repurchased
Effective average cost per delivered share
2016
2015
2014
4
197
41.84
$
$
19
965
50.31
$
$
49
$
$
2,131
44.31
Cash used in dividend payments totaled $719 million in 2016, $613 million in 2015 and $524 million in 2014.
The increases were primarily due to increases in our base dividend, partially offset by a decrease in the number
of outstanding shares of our common stock as a result of share repurchases. Dividends per share were $1.36 in
2016, $1.14 in 2015 and $0.92 in 2014.
Cash used in financing activities in all three years included a portion of the payments to the seller of the
Galveston Bay refinery under the contingent earnout provisions of the purchase and sale agreement.
Derivative Instruments
See Item 7A. Quantitative and Qualitative Disclosures about Market Risk for a discussion of derivative
instruments and associated market risk.
84
Capital Resources
Our liquidity totaled $4.8 billion at December 31, 2016 consisting of:
(In millions)
Bank revolving credit facility(a)
364 day bank revolving credit facility
Trade receivables facility(b)
Total
Cash and cash equivalents(c)
Total liquidity
December 31, 2016
Outstanding
Borrowings
Available
Capacity
Total
Capacity
$
$
2,500
1,000
684
$
4,184
$
-
-
-
-
$
$
$
2,500
1,000
684
4,184
653
4,837
(a)
Excludes MPLX’s $2 billion bank revolving credit facility, which had no borrowings and $3 million of letters of credit outstanding as of
December 31, 2016.
(b) Availability under our $750 million trade receivables facility is a function of refined product selling prices. As of January 31, 2017,
eligible trade receivables supported borrowings of $750 million.
Excludes $234 million of MPLX cash and cash equivalents.
(c)
Because of the alternatives available to us, including internally generated cash flow and access to capital markets,
including a commercial paper program, we believe that our short-term and long-term liquidity is adequate to fund
not only our current operations, but also our near-term and long-term funding requirements, including capital
spending programs, the repurchase of shares of our common stock, dividend payments, defined benefit plan
contributions, repayment of debt maturities and other amounts that may ultimately be paid in connection with
contingencies.
As discussed in the “Strategic Actions to Enhance Shareholder Value” section in the Corporate Overview, we
expect MPLX to finance the planned dropdown transactions with debt and equity in approximately equal
proportions in the aggregate for all planned dropdowns of assets. The equity financing will be funded through
MPLX common units issued to us. In conjunction with the completion of the dropdowns, we also expect to
exchange our economic interests in the general partner of MPLX, including incentive distribution rights, for
newly issued MPLX common units. Cash proceeds from the dropdowns and ongoing MPLX common unit
distributions to us are expected to fund the substantial ongoing return of capital to MPC shareholders in a manner
consistent with maintaining an investment-grade credit profile.
See discussion of the February 2017 issuance of MPLX senior notes due 2027 and 2047 under the MPLX LP
section of the Executive Summary.
Commercial Paper – On February 26, 2016, we established a commercial paper program that allows us to have a
maximum of $2 billion in commercial paper outstanding, with maturities up to 397 days from the date of
issuance. We do not intend to have outstanding commercial paper borrowings in excess of available capacity
under our bank revolving credit facilities. At December 31, 2016, we had no amounts outstanding under the
commercial paper program.
MPC Bank Revolving Credit Facility – On July 20, 2016, we entered into a credit agreement with a syndicate of
lenders to replace our existing MPC bank revolving credit facility due in 2017. The new agreement provides for a
four-year $2.5 billion bank revolving credit facility (“four-year revolving credit facility”) maturing on July 20,
2020. Additionally, we entered into a 364-day $1 billion bank revolving credit facility maturing on July 19, 2017.
The financial covenants contained in these agreements remain the same as under the previous bank revolving
credit facility.
85
Our four-year revolving credit facility includes letter of credit issuing capacity of up to $2.0 billion and swingline
loan capacity of up to $100 million. We may increase our borrowing capacity under our four-year revolving
credit facility by up to an additional $500 million, subject to certain conditions including the consent of the
lenders whose commitments would be increased. In addition, the maturity date of the four-year revolving credit
facility may be extended for up to two additional one-year periods subject to the approval of lenders holding a
majority of the commitments then outstanding, provided that the commitments of any non-consenting lenders
will terminate on the then-effective maturity date.
There were no borrowings or letters of credit outstanding at December 31, 2016.
Trade receivables facility – On July 20, 2016, we amended our trade receivables facility to, among other things,
reduce the capacity from $1 billion to $750 million and to extend the maturity date to July 19, 2019. The
reduction in capacity reflects the lower refined product price environment.
As of December 31, 2016, eligible trade receivables supported borrowings of $684 million. There were no
borrowings outstanding at December 31, 2016. Availability under our trade receivables facility is a function of
refined product selling prices.
MPLX Credit Agreement – MPLX is party to a credit agreement, dated as of November 20, 2014, and amended
as of October 27, 2015 (“MPLX credit agreement”), providing for a $2 billion bank revolving credit facility with
a maturity date of December 4, 2020 and an outstanding $250 million term loan facility with a maturity date of
November 20, 2019.
The MPLX credit agreement includes letter of credit issuing capacity of up to $250 million and swingline loan
capacity of up to $100 million. The revolving borrowing capacity under the MPLX credit agreement may be
increased by up to an additional $500 million, subject to certain conditions, including the consent of the lenders
whose commitments would increase. In addition, the maturity date of the bank revolving credit facility may be
extended from time-to-time during its term to a date that is one year after the then-effective date, subject to the
approval of lenders holding the majority of the loans and commitments then outstanding, provided that the
commitments of any non-consenting lenders will be terminated on the then-effective maturity date.
The maturity date for the term loan facility may be extended for up to two additional one-year periods subject to
the consent of the lenders holding a majority of the outstanding term loan borrowings, provided that the portion
of the term loan borrowings held by any non-consenting lenders will continue to be due and payable on the then-
effective maturity date.
During 2016, MPLX borrowed $434 million under the bank revolving credit facility, at an average interest rate of
1.9 percent, per annum, and repaid $1.31 billion of outstanding borrowings. At December 31, 2016, MPLX had
no borrowings and $3 million of letters of credit outstanding under the bank revolving credit facility, resulting in
total unused loan availability of $2.0 billion.
See Item 8. Financial Statements and Supplementary Data – Note 19 for further discussion of our debt.
The term loan agreement, the MPC bank revolving credit facility and the MPLX credit agreement contain
representations and warranties, affirmative and negative covenants and events of default that we consider usual
and customary for agreements of these types. The financial covenant included in the term loan agreement and the
MPC bank revolving credit facility requires us to maintain, as of the last day of each fiscal quarter, a ratio of
Consolidated Net Debt to Total Capitalization (as defined in the term loan agreement and the MPC bank
revolving credit facility) of no greater than 0.65 to 1.00. As of December 31, 2016, we were in compliance with
this debt covenant with a ratio of Consolidated Net Debt to Total Capitalization of 0.31 to 1.00, as well as the
other covenants contained in the term loan agreement and the MPC bank revolving credit facility.
86
includes certain representations and warranties, affirmative and restrictive
The MPLX credit agreement
covenants and events of default that we consider to be usual and customary for an agreement of this type. The
MPLX credit agreement includes a financial covenant that requires MPLX to maintain a ratio of Consolidated
Total Debt as of the end of each fiscal quarter to Consolidated EBITDA (both as defined in the MPLX credit
agreement) for the prior four fiscal quarters of no greater than 5.0 to 1.0 (or 5.5 to 1.0 for up to two fiscal
quarters following certain acquisitions). Consolidated EBITDA is subject to adjustments for certain acquisitions
completed and capital projects undertaken during the relevant period. Other covenants restrict MPLX and certain
of its subsidiaries from incurring debt, creating liens on its assets and entering into transactions with affiliates. As
of December 31, 2016, MPLX was in compliance with the covenants contained in the MPLX credit agreement,
including a ratio of Consolidated Total Debt to Consolidated EBITDA of 3.26 to 1.0.
Our intention is to maintain an investment-grade credit profile. As of January 31, 2017, the credit ratings on our
and MPLX’s senior unsecured debt were at or above investment grade level as follows.
Company
MPC
MPLX
Rating Agency
Rating
Moody’s
Standard & Poor’s
Fitch
Moody’s
Standard & Poor’s
Fitch
Baa2 (negative outlook)
BBB (stable outlook)
BBB (negative watch)
Baa3 (stable outlook)
BBB- (stable outlook)
BBB- (stable outlook)
The ratings reflect the respective views of the rating agencies. Although it is our intention to maintain a credit
profile that supports an investment-grade rating, there is no assurance that these ratings will continue for any
given period of time. The ratings may be revised or withdrawn entirely by the rating agencies if, in their
respective judgments, circumstances so warrant.
Neither the revolving credit facility, the MPLX credit agreement nor our trade receivables facility contains credit
rating triggers that would result in the acceleration of interest, principal or other payments in the event that our
credit ratings are downgraded. However, any downgrades of our senior unsecured debt to below investment-
grade ratings would increase the applicable interest rates, yields and other fees payable under the revolving credit
facility and our trade receivables facility. In addition, a downgrade of our senior unsecured debt rating to below
investment-grade levels could, under certain circumstances, decrease the amount of trade receivables that are
eligible to be sold under our trade receivables facility, impact our ability to purchase crude oil on an unsecured
basis and could result in us having to post letters of credit under existing transportation services agreements.
87
Debt-to-Total-Capital Ratio
Our debt-to-total capital ratio (total debt to total debt-plus-equity) was 33 percent and 38 percent at December 31,
2016 and 2015, respectively.
(In millions)
Debt due within one year
Long-term debt
Total debt
Calculation of debt-to-total capital ratio:
Total debt
Redeemable noncontrolling interest
Equity
Total capitalization
Debt-to-total capital ratio
December 31,
2016
2015
$
$
$
$
28
10,544
10,572
10,572
1,000
20,203
31,775
$
$
$
$
29
11,896
11,925
11,925
-
19,675
31,600
33%
38%
Redeemable noncontrolling interest – On May 13, 2016, MPLX completed the private placement of
approximately 30.8 million 6.5 percent Series A Convertible Preferred Units (the “MPLX Preferred Units”) at a
cash price of $32.50 per unit. The MPLX Preferred Units are considered redeemable securities due to the
existence of redemption provisions upon a deemed liquidation event which is considered outside MPLX’s
control. Therefore they are presented as temporary equity in the mezzanine section of the consolidated balance
sheets. We have recorded the MPLX Preferred Units at their issuance date fair value, net of issuance costs.
MPC Senior Notes – On December 14, 2015, we completed a public offering of $1.5 billion in aggregate
principal amount of unsecured senior notes (“MPC senior notes”). The net proceeds from the offering of the
MPC senior notes were $1.49 billion, after deducting underwriting discounts and estimated offering expenses.
We used approximately $763 million of the net proceeds from this offering to fund the extinguishment of our
obligation for the $750 million aggregate principal amount of our 3.500% senior notes due 2016.
The MPC senior notes are unsecured and unsubordinated obligations of ours and rank equally with all our other
existing and future unsecured and unsubordinated indebtedness.
MPLX and MarkWest Senior Notes – In connection with the MarkWest Merger, MPLX assumed MarkWest’s
outstanding debt, which included $4.1 billion aggregate principal amount of senior notes. On December 22,
2015, approximately $4.04 billion aggregate principal amount of MarkWest’s outstanding senior notes were
exchanged for an aggregate principal amount of approximately $4.04 billion of new unsecured senior notes
issued by MPLX in an exchange offer and consent solicitation undertaken by MPLX and MarkWest.
On February 12, 2015, MPLX completed a public offering of $500 million aggregate principal amount of four
percent unsecured senior notes due February 15, 2025. The net proceeds, which were approximately $495 million
after deducting underwriting discounts, were used to repay the amounts outstanding under the MPLX bank
revolving credit facility, as well as for general partnership purposes.
See discussion of the February 2017 issuance of MPLX senior notes due 2027 and 2047 under the MPLX LP
section of the Executive Summary.
See Item 8. Financial Statements and Supplementary Data – Note 19 for further discussion of our debt.
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Capital Requirements
Our board approved a 2017 capital spending and investment plan of $1.7 billion for MPC, excluding MPLX.
MPLX’s capital investment plan includes $1.4 billion to $1.7 billion of organic growth capital, not including
anticipated dropdowns and acquisitions previously discussed or their respective subsequent capital spending, and
approximately $100 million of maintenance capital. Additional details related to expected 2017 capital spending
and investments are discussed in the Capital Budget Outlook section below.
During the second quarter of 2016, we paid BP $200 million for the third period’s contingent earnout related to
the acquisition of the Galveston Bay refinery and have paid BP $569 million to-date leaving $131 million
remaining under the total cap of $700 million. See Item 8. Financial Statements and Supplementary Data – Note
17.
In 2016, we made pension contributions totaling $119 million. We have no required funding for 2017, but may
make voluntary contributions at our discretion.
On January 27, 2017, our board of directors approved a $0.36 per share dividend, payable March 10, 2017 to
shareholders of record at the close of business on February 16, 2017.
Since January 1, 2012, our board of directors has approved $10.0 billion in total share repurchase authorizations
and we have repurchased a total of $7.44 billion of our common stock, leaving $2.56 billion available for
repurchases as of December 31, 2016. Under these authorizations, we have acquired 202 million shares at an
average cost per share of $36.77.
We may utilize various methods to effect the repurchases, which could include open market repurchases,
negotiated block transactions, accelerated share repurchases or open market solicitations for shares, some of
which may be effected through Rule 10b5-1 plans. The timing and amount of future repurchases, if any, will
depend upon several factors, including execution of our strategic initiatives, market and business conditions, and
such repurchases may be discontinued at any time.
We may, from time to time, repurchase notes in the open market, in privately-negotiated transactions or
otherwise in such volumes, at such prices and upon such other terms as we deem appropriate.
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Contractual Cash Obligations
The table below provides aggregated information on our consolidated obligations to make future payments under
existing contracts as of December 31, 2016. The contractual obligations detailed below do not include our
contractual obligations to MPLX under various fee-based commercial agreements as these transactions are
eliminated in the consolidated financial statements.
(In millions)
Total
2017
2018-2019
2020-2021
Later Years
Long-term debt(a)
$
17,324
$
Capital lease obligations(b)
Operating lease obligations
Purchase obligations:(c)
382
1,590
514
45
254
Crude oil, feedstock, refined
product and renewable fuel
contracts(d)
Transportation and related
contracts
Contracts to acquire property,
plant and equipment(e)
Service, materials and other
contracts(f)
Total purchase obligations
10,500
7,387
4,730
899
1,860
17,989
443
864
474
9,168
213
$
2,056
$
2,559
$
12,195
85
409
1,395
1,084
35
473
2,987
442
84
358
1,325
968
-
382
2,675
410
168
569
393
2,235
-
531
3,159
1,023
Other long-term liabilities reported
in the consolidated balance sheet(g)
2,088
Total contractual cash
obligations
$
39,373
$
10,194
$
5,979
$
6,086
$
17,114
(a)
Includes interest payments for our senior notes, term loans and the MPLX credit agreement and commitment and administrative fees for
our credit agreement, the MPLX credit agreement and our trade receivables facility.
(d)
(b) Capital lease obligations represent future minimum payments.
Includes both short- and long-term purchases obligations.
(c)
These contracts include variable price arrangements. For purposes of this disclosure we have estimated prices to be paid primarily based
on futures curves for the commodities to the extent available.
Includes $131 million of contingent consideration associated with the acquisition of the Galveston Bay Refinery and Related Assets.
Primarily includes contracts to purchase services such as utilities, supplies and various other maintenance and operating services.
Primarily includes obligations for pension and other postretirement benefits including medical and life insurance, which we have
estimated through 2024. See Item 8. Financial Statements and Supplementary Data – Note 22.
(g)
(e)
(f)
Off-Balance Sheet Arrangements
Off-balance sheet arrangements comprise those arrangements that may potentially impact our liquidity, capital
resources and results of operations, even though such arrangements are not recorded as liabilities under
accounting principles generally accepted in the United States. Our off-balance sheet arrangements are limited to
indemnities and guarantees that are described below. Although these arrangements serve a variety of our business
purposes, we are not dependent on them to maintain our liquidity and capital resources, and we are not aware of
any circumstances that are reasonably likely to cause the off-balance sheet arrangements to have a material
adverse effect on liquidity and capital resources.
We have provided various guarantees related to equity method investees. In conjunction with the Spinoff, we
entered into various indemnities and guarantees to Marathon Oil. These arrangements are described in Item 8.
Financial Statements and Supplementary Data – Note 25.
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Capital Budget Outlook
We expect to spend $1.7 billion in 2017 on capital projects and investments, excluding MPLX, capitalized
interest and acquisitions we may complete. We continuously evaluate our capital budget and make changes as
conditions warrant.
Refining & Marketing
The Refining & Marketing segment’s forecasted 2017 capital spending and investments is $1.17 billion, which
includes approximately $325 million for refining margin enhancement projects and approximately $840 million
for refinery-sustaining capital. A number of these projects span multiple years.
The $325 million forecasted for refining margin enhancement projects includes spending for Garyville distillate
projects, Galveston Bay export capacity expansion and approximately $85 million for the STAR project.
The remaining $840 million budget is primarily allocated to maintaining facilities and meeting regulatory
requirements, including the EPA’s Tier 3 gasoline fuel standards, at our refineries.
Speedway
The Speedway segment’s 2017 capital forecast of approximately $380 million is focused on building new stores
and remodeling and rebuilding existing retail locations in its core markets. We have identified numerous
opportunities for new convenience stores or store rebuilds in our existing market, with a continued focus in
Pennsylvania and Tennessee, as well as opportunities for growth in new markets including Georgia, South
Carolina and the Florida panhandle. We also plan to capitalize on diesel demand growth by building out our
network of commercial fueling lane locations, within our core market which cater to local and regional transport
fleets.
Midstream
MPLX’s capital investment plan includes $1.4 billion to $1.7 billion of organic growth capital, not including
anticipated dropdowns and acquisitions previously discussed or their respective subsequent capital spending, and
approximately $100 million of maintenance capital. Approximately $1.0 billion to $1.3 billion of these growth
investments are for the development of natural gas and gas liquids infrastructure to support MPLX’s producer
customers, primarily in the prolific Marcellus Shale. The remaining $400 million of growth capital is planned for
the development of various crude oil and refined petroleum products infrastructure projects, including a build-out
of Utica Shale infrastructure in connection with the recently completed Cornerstone Pipeline, a butane cavern in
Robinson, Illinois, and a tank farm expansion in Texas City, Texas.
The Midstream segment’s forecasted 2017 capital spend, excluding MPLX, is approximately $90 million.
Corporate and Other
The 2017 capital forecast includes approximately $100 million to support corporate activities.
Our opinions concerning liquidity and capital resources and our ability to avail ourselves in the future of the
financing options mentioned in the above forward-looking statements are based on currently available
information. If this information proves to be inaccurate, future availability of financing may be adversely
affected. Factors that affect the availability of financing include our performance (as measured by various
factors, including cash provided by operating activities), the state of worldwide debt and equity markets, investor
perceptions and expectations of past and future performance, the global financial climate, and, in particular, with
respect to borrowings, the levels of our outstanding debt and credit ratings by rating agencies. The discussion of
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liquidity and capital resources above also contains forward-looking statements regarding expected capital
requirements and investment spending, costs for projects under construction, project completion dates and
expectations or projections about strategies and goals for growth, upgrades and expansion. The forward-looking
statements about our capital and investment budget are based on current expectations, estimates and projections
and are not guarantees of future performance. Actual results may differ materially from these expectations,
estimates and projections and are subject to certain risks, uncertainties and other factors, some of which are
beyond our control and are difficult to predict. Some factors that could cause actual results to differ materially
include our ability to achieve the strategic and other objectives related to the strategic initiatives discussed
herein; adverse changes in laws including with respect to tax and regulatory matters; inability to agree with the
MPLX conflicts committee with respect to the timing of and value attributed to assets identified for dropdown;
changes to the expected construction costs and timing of projects; continued/further volatility in and/or
degradation of market and industry conditions; the availability and pricing of crude oil and other feedstocks;
slower growth in domestic and Canadian crude supply; completion of pipeline capacity to areas outside the U.S.
Midwest; consumer demand for refined products; transportation logistics; the reliability of processing units and
other equipment; MPC’s ability to successfully implement growth opportunities; modifications to MPLX
earnings and distribution growth objectives; compliance with federal and state environmental, economic, health
and safety, energy and other policies and regulations, including the cost of compliance with the Renewable Fuel
Standard, and/or enforcement actions initiated thereunder; changes to MPC’s capital budget; other risk factors
inherent to MPC’s industry; These factors, among others, could cause actual results to differ materially from
those set forth in the forward-looking statements. For additional information on forward-looking statements and
risks that can affect our business, see “Disclosures Regarding Forward-Looking Statements” and Item 1A. Risk
Factors in this Annual Report on Form 10-K.
Transactions with Related Parties
We believe that transactions with related parties were conducted under terms comparable to those with unrelated
parties. See Item 8. Financial Statements and Supplementary Data – Note 7 for discussion of activity with related
parties.
Environmental Matters and Compliance Costs
We have incurred and may continue to incur substantial capital, operating and maintenance, and remediation
expenditures as a result of environmental laws and regulations. If these expenditures, as with all costs, are not
ultimately reflected in the prices of our products and services, our operating results will be adversely affected.
We believe that substantially all of our competitors must comply with similar environmental
laws and
regulations. However, the specific impact on each competitor may vary depending on a number of factors,
including the age and location of its operating facilities, marketing areas, production processes and whether it is
also engaged in the petrochemical business or the marine transportation of crude oil and refined products.
Legislation and regulations pertaining to fuel specifications, climate change and greenhouse gas emissions have
the potential to materially adversely impact our business, financial condition, results of operations and cash
flows, including costs of compliance and permitting delays. The extent and magnitude of these adverse impacts
cannot be reliably or accurately estimated at this time because specific regulatory and legislative requirements
have not been finalized and uncertainty exists with respect to the measures being considered, the costs and the
time frames for compliance, and our ability to pass compliance costs on to our customers. For additional
information see Item 1A. Risk Factors.
92
Our environmental expenditures, including non-regulatory expenditures, for each of the last three years were:
(In millions)
Capital
Compliance:(a)
Operating and maintenance
Remediation(b)
Total
2016
2015
2014
$
302
$
222
$
102
541
40
355
53
$
883
$
630
$
397
36
535
(a) Based on the American Petroleum Institute’s definition of environmental expenditures.
(b)
These amounts include spending charged against remediation reserves, where permissible, but exclude non-cash provisions recorded for
environmental remediation.
We accrue for environmental remediation activities when the responsibility to remediate is probable and the
amount of associated costs can be reasonably estimated. As environmental remediation matters proceed toward
ultimate resolution or as additional remediation obligations arise, charges in excess of those previously accrued
may be required.
New or expanded environmental requirements, which could increase our environmental costs, may arise in the
future. We believe we comply with all legal requirements regarding the environment, but since not all of them
are fixed or presently determinable (even under existing legislation) and may be affected by future legislation or
regulations, it is not possible to predict all of the ultimate costs of compliance, including remediation costs that
may be incurred and penalties that may be imposed.
Our environmental capital expenditures accounted for ten percent, nine percent and five percent of capital
expenditures excluding the MarkWest Merger and the acquisition of Hess’ Retail Operations and Related Assets
in 2016, 2015 and 2014, respectively. Our environmental capital expenditures are expected to approximate
$422 million, or 12 percent, of total capital expenditures in 2017. Predictions beyond 2017 can only be broad-
based estimates, which have varied, and will continue to vary, due to the ongoing evolution of specific regulatory
requirements, the possible imposition of more stringent requirements and the availability of new technologies,
among other matters. Based on currently identified projects, we anticipate that environmental capital
expenditures will be approximately $400 million in 2018; however, actual expenditures may vary as the number
and scope of environmental projects are revised as a result of improved technology or changes in regulatory
requirements and could increase if additional projects are identified or additional requirements are imposed.
For more information on environmental regulations that impact us, or could impact us, see Item 1. Business –
Environmental Matters, Item 1A. Risk Factors and Item 3. Legal Proceedings.
Critical Accounting Estimates
The preparation of financial statements in accordance with US GAAP requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and
liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and
expenses during the respective reporting periods. Accounting estimates are considered to be critical if (1) the
nature of the estimates and assumptions is material due to the levels of subjectivity and judgment necessary to
account for highly uncertain matters or the susceptibility of such matters to change; and (2) the impact of the
estimates and assumptions on financial condition or operating performance is material. Actual results could differ
from the estimates and assumptions used.
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Fair Value Estimates
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. There are three approaches for measuring the fair value of
assets and liabilities: the market approach, the income approach and the cost approach, each of which includes
multiple valuation techniques. The market approach uses prices and other relevant information generated by
market transactions involving identical or comparable assets or liabilities. The income approach uses valuation
techniques to measure fair value by converting future amounts, such as cash flows or earnings, into a single
present value amount using current market expectations about those future amounts. The cost approach is based
on the amount that would currently be required to replace the service capacity of an asset. This is often referred
to as current replacement cost. The cost approach assumes that the fair value would not exceed what it would
cost a market participant
to acquire or construct a substitute asset of comparable utility, adjusted for
obsolescence.
The fair value accounting standards do not prescribe which valuation technique should be used when measuring
fair value and does not prioritize among the techniques. These standards establish a fair value hierarchy that
prioritizes the inputs used in applying the various valuation techniques. Inputs broadly refer to the assumptions
that market participants use to make pricing decisions, including assumptions about risk. Level 1 inputs are given
the highest priority in the fair value hierarchy while Level 3 inputs are given the lowest priority. The three levels
of the fair value hierarchy are as follows:
• Level 1 – Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in
active markets as of the measurement date. Active markets are those in which transactions for the asset
or liability occur in sufficient frequency and volume to provide pricing information on an ongoing
basis.
• Level 2 – Observable market-based inputs or unobservable inputs that are corroborated by market data.
These are inputs other than quoted prices in active markets included in Level 1, which are either
directly or indirectly observable as of the measurement date.
• Level 3 – Unobservable inputs that are not corroborated by market data and may be used with
internally developed methodologies that result in management’s best estimate of fair value.
Valuation techniques that maximize the use of observable inputs are favored. Assets and liabilities are classified
in their entirety based on the lowest priority level of input that is significant to the fair value measurement. The
assessment of the significance of a particular input to the fair value measurement requires judgment and may
affect the placement of assets and liabilities within the levels of the fair value hierarchy. We use a market or
income approach for recurring fair value measurements and endeavor to use the best information available. See
Item 8. Financial Statements and Supplementary Data – Note 17 for disclosures regarding our fair value
measurements.
Significant uses of fair value measurements include:
•
•
•
•
•
•
assessment of impairment of long-lived assets;
assessment of impairment of intangible assets:
assessment of impairment of goodwill;
assessment of impairment of equity method investments;
recorded values for assets acquired and liabilities assumed in connection with acquisitions; and
recorded values of derivative instruments.
94
Impairment Assessments of Long-Lived Assets, Intangible Assets, Goodwill and Equity Method
Investments
Fair value calculated for the purpose of testing our long-lived assets, intangible assets, goodwill and equity
method investments for impairment is estimated using the expected present value of future cash flows method
and comparative market prices when appropriate. Significant judgment is involved in performing these fair value
estimates since the results are based on forecasted assumptions. Significant assumptions include:
• Future margins on products produced and sold. Our estimates of future product margins are based on
our analysis of various supply and demand factors, which include, among other things, industry-wide
capacity, our planned utilization rate, end-user demand, capital expenditures and economic conditions.
Such estimates are consistent with those used in our planning and capital investment reviews.
• Future volumes. Our estimates of future refinery, pipeline throughput and natural gas and NGL
processing volumes are based on internal forecasts prepared by our Refining & Marketing and
Midstream segments operations personnel.
• Discount rate commensurate with the risks involved. We apply a discount rate to our cash flows
based on a variety of factors, including market and economic conditions, operational risk, regulatory
risk and political risk. This discount rate is also compared to recent observable market transactions, if
possible. A higher discount rate decreases the net present value of cash flows.
• Future capital requirements. These are based on authorized spending and internal forecasts.
We base our fair value estimates on projected financial information which we believe to be reasonable. However,
actual results may differ from these projections.
The need to test for impairment can be based on several indicators, including a significant reduction in prices of
or demand for products produced, a poor outlook for profitability, a significant reduction in pipeline throughput
volumes, a significant reduction in natural gas or NGLs processed, a significant reduction in refining margins,
other changes to contracts or changes in the regulatory environment in which the asset or equity method
investment is located.
Long-lived assets used in operations are assessed for impairment whenever changes in facts and circumstances
indicate that the carrying value of the assets may not be recoverable based on the expected undiscounted future
cash flow of an asset group. For purposes of impairment evaluation, long-lived assets must be grouped at the
lowest level for which independent cash flows can be identified, which generally is the refinery and associated
distribution system level for Refining & Marketing segment assets, site level for Speedway segment convenience
stores, and the plant level or pipeline system level for Midstream segment assets. If the sum of the undiscounted
estimated pretax cash flows is less than the carrying value of an asset group, fair value is calculated, and the
carrying value is written down if greater than the calculated fair value.
Unlike long-lived assets, goodwill must be tested for impairment at least annually, and between annual tests if an
event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit
below its carrying amount. Goodwill is tested for impairment at the reporting unit level. We have thirteen
reporting units, nine of which have goodwill allocated to them. At December 31, 2016, we had a total of
$3.59 billion of goodwill recorded on our consolidated balance sheet.
Based on an interim goodwill impairment test, MPLX recorded approximately $130 million of impairment
expense related to charges recorded during the first and second quarters of 2016, which is reflected in our
consolidated financial statements.
MPC has nine reporting units with goodwill totaling approximately $3.59 billion as of November 30, 2016. Step
1 of the annual impairment analysis resulted in the fair value of the reporting units exceeding their carrying value
95
by percentages ranging from approximately 8 percent to 303 percent. The reporting unit with fair value
exceeding its carrying value by approximately 8 percent has goodwill of $228 million at December 31, 2016. An
increase of 0.50 percent to the discount rate used to estimate the fair value of the reporting units would not have
resulted in a goodwill impairment charge as of November 30, 2016. Significant assumptions used to estimate the
reporting units’ fair value included estimates of future cash flows. If estimates for future cash flows, which are
impacted primarily by commodity prices and producers’ production plans, were to decline, the overall reporting
units’ fair value would decrease, resulting in potential goodwill impairment charges. Fair value determinations
require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result,
there can be no assurance that the estimates and assumptions made for purposes of the impairment tests will
prove to be an accurate prediction of the future.
Equity method investments are assessed for impairment whenever factors indicate an other than temporary loss
in value. Factors providing evidence of such a loss include the fair value of an investment that is less than its
carrying value, absence of an ability to recover the carrying value or the investee’s inability to generate income
sufficient to justify our carrying value. At December 31, 2016, we had $3.83 billion of investments in equity
method investments recorded on our consolidated balance sheet.
An estimate of the sensitivity to net income resulting from impairment calculations is not practicable, given the
numerous assumptions (e.g., pricing, volumes and discount rates) that can materially affect our estimates. That is,
unfavorable adjustments to some of the above listed assumptions may be offset by favorable adjustments in other
assumptions.
MPLX performed a fixed asset impairment analysis during the second quarter of 2016 for Ohio Condensate
Company (“OCC”) resulting in an impairment charge of $96 million within OCC’s financial statements.
Approximately $58 million of the charge was attributable to MPLX based on its 60 percent ownership of OCC
and was recorded in Income (loss) from equity method investments on the accompanying Consolidated
Statements of Income. Furthermore, to determine the potential equity method impairment charge, an impairment
analysis in accordance with ASC Topic 323 was performed during the second quarter resulting in an additional
impairment charge of approximately $31 million, recorded in Income (loss) from equity method investments on
the accompanying Consolidated Statements of Income.
For purposes of the second quarter impairment analysis, the fair value of OCC was determined based on applying
the discounted cash flow method, which is an income approach, and the guideline public company method,
which is a market approach. The significant assumptions used to estimate the fair value under the discounted
cash flow method included management’s best estimates of the expected results using a probability weighted
average set of cash flow forecasts and using a discount rate of 11.2 percent. Fair value determinations require
considerable judgment and are sensitive to changes in underlying assumptions and factors. As such, the fair value
of the OCC equity method investment and its underlying fixed assets represents a Level 3 measurement.
As of December 31, 2016, MPLX determined that there were no material events or changes in circumstances that
would indicate an other-than-temporary decline in its equity method investments.
During the third quarter of 2016, Enbridge Energy Partners announced that its affiliate, North Dakota Pipeline,
would withdraw certain pending regulatory applications for its Sandpiper pipeline project and that the project
would be deferred indefinitely. These decisions were considered to indicate an impairment of the costs
capitalized to date on the project. As the operator of North Dakota Pipeline and the entity responsible for
maintaining its financial records, Enbridge completed a fixed asset impairment analysis as of August 31, 2016, in
accordance with ASC Topic 360. Based on the estimated liquidation value of the fixed assets, an impairment
charge was recorded by North Dakota Pipeline. Based on our 37.5 percent ownership of North Dakota Pipeline,
we recognized approximately $267 million of this charge in the third quarter of 2016 through “Income (loss)
from equity method investments” on the accompanying consolidated statements of income which impaired
virtually all of our $301 million investment in the project. Also, in accordance with ASC Topic 323, we
96
completed an assessment to determine the potential additional equity method impairment charge to be recorded
on our consolidated financial statements resulting from an other-than-temporary impairment. The result of this
analysis indicated no additional charge was required to be recorded.
The fixed assets of North Dakota Pipeline related to the Sandpiper pipeline project consist primarily of project
management and engineering costs, pipe, valves, motors and other equipment, land and easements. The fair value
of fixed assets was estimated based on a market approach using the estimated price that would be received to sell
pipe, land and other related equipment in its current condition, considering the current market conditions for sale
of these assets and length of disposal period. The valuation considered a range of potential selling prices from
various alternatives that could be used to dispose of these assets. As such, the fair value of the North Dakota
Pipeline equity method investment and its underlying assets represents a Level 3 measurement. North Dakota
Pipeline expects to dispose of these assets through orderly transactions.
Centennial experienced a significant reduction in shipment volumes in the second half of 2011 that has continued
through 2015. At December 31, 2016, Centennial was not shipping product. As a result, we continued to evaluate
the carrying value of our equity investment in Centennial. We concluded that no impairment was required given
our assessment of its fair value based on market participant assumptions for various potential uses and future
cash flows of Centennial’s assets. If market conditions were to change and the owners of Centennial are unable to
find an alternative use for the assets, there could be a future impairment of our Centennial interest. As of
December 31, 2016, our equity investment in Centennial was $35 million and we had a $29 million guarantee
associated with 50 percent of Centennial’s outstanding debt. See Item 8. Financial Statements and Supplementary
Data – Note 25 for additional information on the debt guarantee.
The above discussion contains forward-looking statements with respect to the carrying value of our Centennial
equity investment. Factors that could affect the carrying value of our Centennial equity investment include, but
are not limited to, a change in business conditions, a further decline or improvement in the long-term outlook of
the potential uses of Centennial’s assets and the pursuit of different strategic alternatives for such assets. These
factors, among others, could cause actual results to differ materially from those set forth in the forward-looking
statements.
Acquisitions
In accounting for business combinations, acquired assets, assumed liabilities and contingent consideration are
recorded based on estimated fair values as of the date of acquisition. The excess or shortfall of the purchase price
when compared to the fair value of the net tangible and identifiable intangible assets acquired, if any, is recorded
as goodwill or a bargain purchase gain, respectively. A significant amount of judgment is involved in estimating
the individual fair values of property, plant and equipment, intangible assets, contingent consideration and other
assets and liabilities. We use all available information to make these fair value determinations and, for certain
acquisitions, engage third-party consultants for assistance.
The fair value of assets and liabilities, including contingent consideration, as of the acquisition date are often
estimated using a combination of approaches, including the income approach, which requires us to project related
future cash inflows and outflows and apply an appropriate discount rate; the cost approach, which requires
estimates of replacement costs and depreciation and obsolescence estimates; and the market approach which uses
market data and adjusts for entity-specific differences. The estimates used in determining fair values are based on
assumptions believed to be reasonable but which are inherently uncertain. Accordingly, actual results may differ
from the projected results used to determine fair value.
For the customer contract intangibles for our Midstream segment, we must estimate the expected life of the
relationships with our customers on an individual basis. The estimates used in determining fair values are based
on assumptions believed to be reasonable but which are inherently uncertain. Accordingly, actual results may
differ from the projected results used to determine fair value.
97
The fair value of the contingent consideration we expect to pay to BP is re-measured each quarter using an
income approach, with changes in fair value recorded in cost of revenues. The amount of cash to be paid under
the arrangement is based on both a market-based crack spread and refinery throughput volumes for the months
during which the contract applies, as well as established thresholds that cap the annual and total payment. We
used internal and external forecasts for the crack spread and internal forecasts for refinery throughput volumes
and applied an appropriate risk-adjusted discount rate to the range of cash flows indicated by various scenarios to
determine the fair value of the arrangement. See Item 8. Financial Statements and Supplementary Data – Note 5
for additional information on our acquisitions. See Item 8. Financial Statements and Supplementary Data – Note
17 for additional information on fair value measurements.
Derivatives
We record all derivative instruments at fair value. Substantially all of our commodity derivatives are cleared
through exchanges which provide active trading information for identical derivatives and do not require any
assumptions in arriving at fair value. Fair value estimation for all our derivative instruments is discussed in
Item 8. Financial Statements and Supplementary Data – Note 17. Additional information about derivatives and
their valuation may be found in Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Variable Interest Entities
We evaluate all legal entities in which we hold an ownership or other pecuniary interest to determine if the entity
is a VIE. Our interests in a VIE are referred to as variable interests. Variable interests can be contractual,
ownership or other pecuniary interests in an entity that change with changes in the fair value of the VIE’s assets.
When we conclude that we hold an interest in a VIE we must determine if we are the entity’s primary
beneficiary. A primary beneficiary is deemed to have a controlling financial interest in a VIE. This controlling
financial interest is evidenced by both (a) the power to direct the activities of the VIE that most significantly
impact the VIE’s economic performance and (b) the obligation to absorb losses that could potentially be
significant to the VIE or the right to receive benefits that could potentially be significant to the VIE. We
consolidate any VIE when we determine that we are the primary beneficiary. We must disclose the nature of any
interests in a VIE that is not consolidated.
Significant judgment is exercised in determining that a legal entity is a VIE and in evaluating our interest in a
VIE. We use primarily a qualitative analysis to determine if an entity is a VIE. We evaluate the entity’s need for
continuing financial support; the equity holder’s lack of a controlling financial interest; and/or if an equity
holder’s voting interests are disproportionate to its obligation to absorb expected losses or receive residual
returns. We evaluate our interests in a VIE to determine whether we are the primary beneficiary. We use a
primarily qualitative analysis to determine if we are deemed to have a controlling financial interest in the VIE,
either on a standalone basis or as part of a related party group. We continually monitor our interests in legal
entities for changes in the design or activities of an entity and changes in our interests, including our status as the
primary beneficiary to determine if the changes require us to revise our previous conclusions.
MPLX is a VIE because the limited partners of MPLX do not have substantive kick-out or substantive
participating rights over the general partner. We are the primary beneficiary of MPLX because in addition to
significant economic interest, we also have the power, through our 100 percent ownership of the general partner,
to control the decisions that most significantly impact MPLX. We therefore consolidate MPLX and record a
noncontrolling interest for the 74.5 percent interest owned by the public.
MarkWest Utica EMG, a natural gas and NGL processing joint venture, is a VIE; however, we are not considered
to be the primary beneficiary. As a result, it is accounted for under the equity method. Changes in the design or
nature of the activities of this entity, or our involvement with the entity, may require us to reconsider our
conclusions on the entity’s status as a VIE and/or our status as the primary beneficiary. Such reconsideration
requires significant judgment and understanding of the organization. This could result in the consolidation of the
98
entity which would have a significant impact on our financial statements. Ohio Gathering is a subsidiary of
MarkWest Utica EMG and is a VIE. If we were to consolidate MarkWest Utica EMG, Ohio Gathering would
need to be assessed for consolidation or deconsolidation.
Variable Interest Entities are discussed in Item 8. Financial Statements and Supplementary Data – Note 6 .
Pension and Other Postretirement Benefit Obligations
Accounting for pension and other postretirement benefit obligations involves numerous assumptions, the most
significant of which relate to the following:
•
•
•
•
•
the discount rate for measuring the present value of future plan obligations;
the expected long-term return on plan assets;
the rate of future increases in compensation levels;
health care cost projections; and
the mortality table used in determining future plan obligations.
We utilize the work of third-party actuaries to assist in the measurement of these obligations. We have selected
different discount rates for our funded pension plans and our unfunded retiree health care plans due to the
different projected benefit payment patterns. The selected rates are compared to various similar bond indexes for
reasonableness. In determining the assumed discount rates, we use our third-party actuary’s discount rate model.
This model calculates an equivalent single discount rate for the projected benefit plan cash flows using a yield
curve derived from Aa bond yields. The yield curve represents a series of annualized individual spot discount
rates from 0.5 to 99 years. The bonds used have an average rating of Aa or higher by a recognized rating agency
and generally only non-callable bonds are included. Outlier bonds that have a yield to maturity that deviate
significantly from the average yield within each maturity grouping are not included. Each issue is required to
have at least $250 million par value outstanding.
Of the assumptions used to measure the year-end obligations and estimated annual net periodic benefit cost, the
discount rate has the most significant effect on the periodic benefit cost reported for the plans. Decreasing the
discount rates of 3.90 percent for our pension plans and 4.25 percent for our other postretirement benefit plans by
0.25 percent would increase pension obligations and other postretirement benefit plan obligations by $44 million
and $26 million, respectively, and would increase defined benefit pension expense and other postretirement
benefit plan expense by $3 million and $1 million, respectively.
The long-term asset rate of return assumption considers the asset mix of the plans (currently targeted at
approximately 51 percent equity securities and 49 percent fixed income securities for the primary funded pension
plan), past performance and other factors. Certain components of the asset mix are modeled with various
assumptions regarding inflation and returns. In addition, our long-term asset rate of return assumption is
compared to those of other companies and to historical returns for reasonableness. We used the 6.50 percent
long-term rate of return to determine our 2016 defined benefit pension expense. After evaluating activity in the
capital markets, along with the current and projected plan investments, we did not change the asset rate of return
for our primary plan from 6.50 percent effective for 2017. Decreasing the 6.50 percent asset rate of return
assumption by 0.25 percent would increase our defined benefit pension expense by $4 million.
Compensation change assumptions are based on historical experience, anticipated future management actions
and demographics of the benefit plans.
Health care cost trend assumptions are developed based on historical cost data, the near-term outlook and an
assessment of likely long-term trends.
99
We utilized the 2016 mortality tables from the U.S. Society of Actuaries.
Item 8. Financial Statements and Supplementary Data – Note 22 includes detailed information about the
assumptions used to calculate the components of our annual defined benefit pension and other postretirement
plan expense, as well as the obligations and accumulated other comprehensive loss reported on the year-end
balance sheets.
Contingent Liabilities
We accrue contingent liabilities for legal actions, claims, litigation, environmental remediation, tax deficiencies
related to operating taxes and third-party indemnities for specified tax matters when such contingencies are both
probable and estimable. We regularly assess these estimates in consultation with legal counsel to consider
resolved and new matters, material developments in court proceedings or settlement discussions, new
information obtained as a result of ongoing discovery and past experience in defending and settling similar
matters. Actual costs can differ from estimates for many reasons. For instance, settlement costs for claims and
litigation can vary from estimates based on differing interpretations of laws, opinions on degree of responsibility
and assessments of the amount of damages. Similarly, liabilities for environmental remediation may vary from
estimates because of changes in laws, regulations and their interpretation, additional information on the extent
and nature of site contamination and improvements in technology.
We generally record losses related to these types of contingencies as cost of revenues or selling, general and
administrative expenses in the consolidated statements of income, except for tax deficiencies unrelated to income
taxes, which are recorded as other taxes. For additional information on contingent liabilities, see Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Environmental
Matters and Compliance Costs.
An estimate of the sensitivity to net income if other assumptions had been used in recording these liabilities is
not practical because of the number of contingencies that must be assessed,
the number of underlying
assumptions and the wide range of reasonably possible outcomes, in terms of both the probability of loss and the
estimates of such loss.
Accounting Standards Not Yet Adopted
As discussed in Item 8. Financial Statements and Supplementary Data – Note 3 to our audited consolidated
financial statements, certain new financial accounting pronouncements will be effective for our financial
statements in the future.
100
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
General
We are exposed to market risks related to the volatility of crude oil and refined product prices. We employ
various strategies, including the use of commodity derivative instruments, to hedge the risks related to these price
fluctuations. We are also exposed to market risks related to changes in interest rates and foreign currency
exchange rates. As of December 31, 2016, we did not have any financial derivative instruments to hedge the risks
related to interest rate fluctuations; however, we have used them in the past, and we continually monitor the
market and our exposure and may enter into these agreements again in the future. We are at risk for changes in
fair value of all of our derivative instruments; however, such risk should be mitigated by price or rate changes
related to the underlying commodity or financial transaction.
We believe that our use of derivative instruments, along with our risk assessment procedures and internal
controls, does not expose us to material adverse consequences. While the use of derivative instruments could
materially affect our results of operations in particular quarterly or annual periods, we believe that the use of
these instruments will not have a material adverse effect on our financial position or liquidity.
See Item 8. Financial Statements and Supplementary Data – Notes 17 and 18 for more information about the fair
value measurement of our derivatives, as well as the amounts recorded in our consolidated balance sheets and
statements of income. We do not designate any of our commodity derivative instruments as hedges for
accounting purposes.
Commodity Price Risk
Refining & Marketing
Our strategy is to obtain competitive prices for our products and allow operating results to reflect market price
movements dictated by supply and demand. We use a variety of commodity derivative instruments, including
futures and options, as part of an overall program to hedge commodity price risk. We also authorize the use of
the market knowledge gained from these activities to do a limited amount of trading not directly related to our
physical transactions.
We use commodity derivative instruments on crude oil and refined product inventories to hedge price risk
associated with inventories above or below LIFO inventory targets. We also use derivative instruments related to
the acquisition of foreign-sourced crude oil and ethanol blended with refined petroleum products to hedge price
risk associated with market volatility between the time we purchase the product and when we use it in the
refinery production process or it is blended. In addition, we may use commodity derivative instruments on fixed
price contracts for the sale of refined products to hedge risk by converting the refined product sales to market-
based prices. The majority of these derivatives are exchange-traded contracts. We closely monitor and hedge our
exposure to market risk on a daily basis in accordance with policies approved by our board of directors. Our
positions are monitored daily by a risk control group to ensure compliance with our stated risk management
policy.
Midstream
NGL and natural gas prices are volatile and are impacted by changes in fundamental supply and demand, as well
as market uncertainty, availability of NGL transportation and fractionation capacity and a variety of additional
factors that are beyond MPLX’s control. MPLX’s profitability is directly affected by prevailing commodity
prices primarily as a result of processing or conditioning at its own or third-party processing plants, purchasing
and selling or gathering and transporting volumes of natural gas at index-related prices and the cost of third-party
transportation and fractionation services. To the extent that commodity prices influence the level of natural gas
drilling by MPLX’s producer customers, such prices also affect profitability. To protect MPLX financially
101
against adverse price movements and to maintain more stable and predictable cash flows so that it can meet its
cash distribution objectives, debt service and capital plans, MPLX executes a strategy governed by its risk
management policy. MPLX has a committee comprised of senior management that oversees risk management
activities, continually monitors the risk management program and adjusts its strategy as conditions warrant.
Derivative contracts utilized for crude oil, natural gas and NGLs are swaps and options traded on the OTC
market and fixed price forward contracts. As a result of MPLX’s current derivative positions, it believes that it
has mitigated a portion of its expected commodity price risk through the fourth quarter of 2017. MPLX would be
exposed to additional commodity risk in certain situations such as if producers under-deliver or over-deliver
products or if processing facilities are operated in different recovery modes. In the event that MPLX has
derivative positions in excess of the product delivered or expected to be delivered, the excess derivative positions
may be terminated.
MPLX management conducts a standard credit review on counterparties to derivative contracts, and it has
provided the counterparties with a guaranty as credit support for its obligations. A separate agreement with
certain counterparties allows MarkWest Liberty Midstream to enter into derivative positions without posting cash
collateral. MPLX uses standardized agreements that allow for offset of certain positive and negative exposures in
the event of default or other terminating events, including bankruptcy.
Open Derivative Positions and Sensitivity Analysis
The table below sets forth information relating to our significant open commodity derivative contracts as of
December 31, 2016.
Crude Oil(a)
Exchange-traded
Exchange-traded
OTC
Natural Gas
OTC
Refined Products(b)
Exchange-traded
Exchange-traded
OTC
Position
Total Barrels
(In thousands)
Weighted Average Price
(Per barrel)
Benchmark
December 31, 2016
Long
Short
Short
53,028
(52,373)
(37)
$50.62
$52.13
$52.10
CME and ICE Crude(c)(d)
CME and ICE Crude(c)(d)
Position
MMBtu
Weighted Average Price
(Per MMBtu)
Long
297,017
$ 2.93
Position
Total Gallons
(In thousands)
Weighted Average Price
(Per gallon)
Benchmark
Long
Short
Short
196,434
(221,970)
(64,212)
$ 1.64
$ 1.68
$ 0.61
CME Heating Oil and RBOB(c)(e)
CME Heating Oil and RBOB(c)(e)
(a)
(b)
98.7 percent of exchange-traded contracts expire in the first quarter of 2017.
100 percent of exchange-traded contracts expire in the first quarter of 2017.
(c) Chicago Mercantile Exchange (“CME”).
(d)
Intercontinental Exchange (“ICE”).
(e) Reformulated gasoline Blendstock for Oxygenate Blending (“RBOB”).
102
Sensitivity analysis of the incremental effects on income from operations (“IFO”) of hypothetical 10 percent and
25 percent increases and decreases in commodity prices for open commodity derivative instruments as of
December 31, 2016 is provided in the following table.
(In millions)
As of December 31, 2016
Crude
Refined products
Embedded derivatives
Change
in IFO from a
Hypothetical Price
Increase of
Change
in IFO from a
Hypothetical Price
Decrease of
10%
25%
10%
25%
$
65,682
$
180,196
$
103,186
$
272,641
(4,986)
(5,356)
(12,465)
(13,389)
4,986
5,356
12,465
13,389
We remain at risk for possible changes in the market value of commodity derivative instruments; however, such
risk should be mitigated by price changes in the underlying physical commodity. Effects of these offsets are not
reflected in the above sensitivity analysis.
We evaluate our portfolio of commodity derivative instruments on an ongoing basis and add or revise strategies
in anticipation of changes in market conditions and in risk profiles. Changes to the portfolio after December 31,
2016 would cause future IFO effects to differ from those presented above.
Interest Rate Risk
We are impacted by interest rate fluctuations related to our debt obligations. At December 31, 2016, our debt was
primarily comprised of the $2.25 billion aggregate principal amount of fixed rate senior notes issued February 1,
2011, the $1.95 billion aggregate principal amount of fixed rate senior notes issued September 5, 2014, the
$500 million aggregate principal amount of fixed rate MPLX senior notes issued February 12, 2015, the
$1.50 billion aggregate principal amount of fixed rate senior notes issued December 15, 2015 and the
$4.04 billion aggregate principal amount of fixed rate MPLX senior notes issued December 22, 2015.
Additionally, we have $450 million of variable rate term debt.
Sensitivity analysis of the effect of a hypothetical 100-basis-point change in interest rates on long-term debt as of
December 31, 2016 is provided in the following table. Fair value of cash and cash equivalents, receivables,
accounts payable and accrued interest approximate carrying value and are relatively insensitive to changes in
interest rates due to the short-term maturity of the instruments. Accordingly, these instruments are excluded from
the table.
(In millions)
Long-term debt(a)
Fixed-rate
Variable-rate
Fair Value(b)
Change in
Fair Value
Change in Net Income for the
Twelve Months Ended
December 31, 2016
$
10,442
$
831 (c)
450
0
n/a
11 (d)
(a)
(b)
Excludes capital leases.
Fair value was based on market prices, where available, or current borrowing rates for financings with similar terms and maturities.
(c) Assumes a 100-basis point decrease in the weighted average yield-to-maturity at December 31, 2016.
(d) Assumes a 100-basis-point change in interest rates. The change in net income was based on the weighted average balance of debt
outstanding for the year ended December 31, 2016.
103
At December 31, 2016, our portfolio of long-term debt was comprised of fixed-rate instruments and variable-rate
borrowings under the term loan agreement and the MPLX term loan facility. The fair value of our fixed-rate debt
is relatively sensitive to interest rate fluctuations. Our sensitivity to interest rate declines and corresponding
increases in the fair value of our debt portfolio unfavorably affects our results of operations and cash flows only
when we elect to repurchase or otherwise retire fixed-rate debt at prices above carrying value. Interest rate
fluctuations generally do not impact the fair value of borrowings under the term loan agreement, the MPLX term
loan facility and MPLX bank revolving credit facility, but may affect our results of operations and cash flows.
Foreign Currency Exchange Rate Risk
We are impacted by foreign exchange rate fluctuations related to some of our purchases of crude oil denominated
in Canadian dollars. We did not utilize derivatives to hedge our market risk exposure to these foreign exchange
rate fluctuations in 2016.
Counterparty Risk
We are subject to risk of loss resulting from nonpayment by our customers to whom we provide services or sell
natural gas or NGLs. We believe that certain contracts would allow us to pass those losses through to our
customers, thus reducing our risk, when we are selling NGLs and acting as our producer customers’ agent. Our
credit exposure related to these customers is represented by the value of our trade receivables. Where exposed to
credit risk, we analyze the customer’s financial condition prior to entering into a transaction or agreement,
establish credit terms and monitor the appropriateness of these terms on an ongoing basis. In the event of a
customer default, we may sustain a loss and our cash receipts could be negatively impacted.
We are subject to risk of loss resulting from nonpayment or nonperformance by counterparties or future
commission merchants. Our credit exposure related to commodity derivative instruments is represented by the
fair value of contracts with a net positive fair value at the reporting date. These outstanding instruments expose
us to credit
loss in the event of nonperformance by the counterparties to the agreements. Should the
creditworthiness of one or more of our counterparties decline, our ability to mitigate nonperformance risk is
limited to a counterparty agreeing to either a voluntary termination and subsequent cash settlement or a novation
of the derivative contract to a third party. In the event of a counterparty default, we may sustain a loss and our
cash receipts could be negatively impacted. This counterparty credit risk does not apply to our embedded
derivative as the overall value is a liability. We regularly review the creditworthiness of counterparties and
futures commission merchants and enter into master netting agreements when appropriate.
Forward-Looking Statements
These quantitative and qualitative disclosures about market risk include forward-looking statements with respect
to management’s opinion about risks associated with the use of derivative instruments. These statements are
based on certain assumptions with respect to interest rates as well as market prices and industry supply of and
demand for crude oil, other refinery feedstocks, refined products, natural gas, NGLs and ethanol. If these
assumptions prove to be inaccurate, future outcomes with respect to our use of derivative instruments may differ
materially from those discussed in the forward-looking statements.
104
Item 8. Financial Statements and Supplementary Data
Index
Management’s Responsibilities for Financial Statements
Management’s Report on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm
Audited Consolidated Financial Statements:
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Equity and Redeemable Noncontrolling Interest
Notes to Consolidated Financial Statements
Selected Quarterly Financial Data (Unaudited)
Supplementary Statistics (Unaudited)
Page
106
106
107
108
109
110
111
112
113
175
176
105
Management’s Responsibilities for Financial Statements
The accompanying consolidated financial statements of Marathon Petroleum Corporation and its subsidiaries
(“MPC”) are the responsibility of management and have been prepared in conformity with accounting principles
generally accepted in the United States of America. They necessarily include some amounts that are based on
best judgments and estimates. The financial information displayed in other sections of this Annual Report on
Form 10-K is consistent with these consolidated financial statements.
MPC seeks to assure the objectivity and integrity of its financial records by careful selection of its managers, by
organizational arrangements that provide an appropriate division of responsibility and by communications
programs aimed at assuring that its policies and methods are understood throughout the organization.
The board of directors pursues its oversight role in the area of financial reporting and internal control over
financial reporting through its Audit Committee. This committee, composed solely of independent directors,
regularly meets (jointly and separately) with the independent registered public accounting firm, management and
internal auditors to monitor the proper discharge by each of their responsibilities relative to internal accounting
controls and the consolidated financial statements.
/s/ Gary R. Heminger
Gary R. Heminger
Chairman of the Board,
President and
Chief Executive Officer
/s/ Timothy T. Griffith
Timothy T. Griffith
Senior Vice President
and Chief Financial
Officer
/s/ John J. Quaid
John J. Quaid
Vice President and
Controller
Management’s Report on Internal Control over Financial Reporting
MPC’s management is responsible for establishing and maintaining adequate internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934). An
evaluation of the design and effectiveness of our internal control over financial reporting, based on the
framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission, was conducted under the supervision and with the participation of
management, including our chief executive officer and chief financial officer. Based on the results of this
evaluation, MPC’s management concluded that its internal control over financial reporting was effective as of
December 31, 2016.
The effectiveness of MPC’s internal control over financial reporting as of December 31, 2016 has been audited
by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report
which is included herein.
/s/ Gary R. Heminger
Gary R. Heminger
Chairman of the Board,
President and
Chief Executive Officer
/s/ Timothy T. Griffith
Timothy T. Griffith
Senior Vice President
and Chief Financial
Officer
106
Report of Independent Registered Public Accounting Firm
To the Stockholders of Marathon Petroleum Corporation:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income,
comprehensive income, equity, and cash flows present fairly, in all material respects, the financial position of
Marathon Petroleum Corporation and its subsidiaries at December 31, 2016 and 2015, and the results of their
operations and their cash flows for each of the three years in the period ended December 31, 2016 in conformity
with accounting principles generally accepted in the United States of America. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016,
based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for
these financial statements, for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on
these financial statements and on the Company’s internal control over financial reporting based on our integrated
audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement and whether effective internal
control over financial reporting was maintained in all material respects. Our audits of the financial statements
included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal control over financial reporting included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material weakness exists,
and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.
Our audits also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent
internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
limitations,
/s/PricewaterhouseCoopers LLP
Toledo, Ohio
February 24, 2017
107
Marathon Petroleum Corporation
Consolidated Statements of Income
(In millions, except per share data)
Revenues and other income:
2016
2015
2014
Sales and other operating revenues (including consumer excise taxes)
$
63,339
$
72,051
$
97,817
Income (loss) from equity method investments
Net gain on disposal of assets
Other income
Total revenues and other income
Costs and expenses:
Cost of revenues (excludes items below)
Purchases from related parties
Inventory market valuation adjustment
Consumer excise taxes
Impairment expense
Depreciation and amortization
Selling, general and administrative expenses
Other taxes
Total costs and expenses
Income from operations
(185)
32
178
88
7
112
153
21
111
63,364
72,258
98,102
49,170
55,583
83,770
509
(370)
7,506
130
2,001
1,605
435
60,986
2,378
308
370
7,692
144
1,502
1,576
391
67,566
4,692
505
-
6,685
-
1,326
1,375
390
94,051
4,051
Net interest and other financial income (costs)
(556)
(318)
(216)
Income before income taxes
Provision for income taxes
Net income
Less net income (loss) attributable to:
Redeemable noncontrolling interest
Noncontrolling interests
Net income attributable to MPC
Per Share Data (See Note 8)
Basic:
Net income attributable to MPC per share
Weighted average shares outstanding
Diluted:
Net income attributable to MPC per share
Weighted average shares outstanding
Dividends paid
1,822
609
1,213
41
(2)
4,374
1,506
2,868
-
16
3,835
1,280
2,555
-
31
$
1,174
$
2,852
$
2,524
$
$
$
2.22
528
2.21
530
1.36
$
$
$
5.29
538
5.26
542
1.14
$
$
$
4.42
570
4.39
574
0.92
The accompanying notes are an integral part of these consolidated financial statements.
108
Marathon Petroleum Corporation
Consolidated Statements of Comprehensive Income
(In millions)
Net income
Other comprehensive income (loss):
Defined benefit postretirement and post-employment plans:
Actuarial changes, net of tax of $69, $21 and ($47)
Prior service costs, net of tax of ($18), ($24) and ($19)
Other comprehensive income (loss)
Comprehensive income
Less comprehensive income (loss) attributable to:
Redeemable noncontrolling interest
Noncontrolling interests
2016
2015
2014
$
1,213
$
2,868
$
2,555
115
(31)
84
34
(39)
(5)
1,297
2,863
41
(2)
-
16
(78)
(31)
(109)
2,446
-
31
Comprehensive income attributable to MPC
$
1,258
$
2,847
$
2,415
The accompanying notes are an integral part of these consolidated financial statements.
109
Marathon Petroleum Corporation
Consolidated Balance Sheets
(In millions, except share data)
Assets
Current assets:
Cash and cash equivalents (MPLX: $234 and $43, respectively)
Receivables, less allowance for doubtful accounts of $12 and $12 (MPLX: $302 and $257,
respectively)
Inventories (MPLX: $54 and $51, respectively)
Other current assets (MPLX: $33 and $50, respectively)
Total current assets
Equity method investments (MPLX: $2,467 and $2,458, respectively)
Property, plant and equipment, net (MPLX: $10,730 and $9,997, respectively)
Goodwill (MPLX: $2,199 and $2,570, respectively)
Other noncurrent assets (MPLX: $506 and $478, respectively)
Total assets
Liabilities
Current liabilities:
Accounts payable (MPLX: $506 and $449, respectively)
Payroll and benefits payable (MPLX: $1 and $18, respectively)
Consumer excise taxes payable (MPLX: $2 and $1, respectively)
Accrued taxes (MPLX: $31 and $26, respectively)
Debt due within one year (MPLX: $1 and $1, respectively)
Other current liabilities (MPLX: $78 and $65, respectively)
Total current liabilities
Long-term debt (MPLX: $4,422 and $5,255, respectively)
Deferred income taxes (MPLX: $5 and $378, respectively)
Defined benefit postretirement plan obligations
Deferred credits and other liabilities (MPLX: $181 and $170, respectively)
Total liabilities
Commitments and contingencies (see Note 25)
Redeemable noncontrolling interest
Equity
MPC stockholders’ equity:
Preferred stock, no shares issued and outstanding (par value 0.01 per share, 30 million shares
authorized)
Common stock:
Issued – 731 million and 729 million shares (par value 0.01 per share, 1 billion shares
authorized)
Held in treasury, at cost – 203 million and 198 million shares
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total MPC stockholders’ equity
Noncontrolling interests
Total equity
Total liabilities, redeemable noncontrolling interest and equity
The accompanying notes are an integral part of these consolidated financial statements.
110
December 31,
2016
2015
$
887
$
1,127
3,617
5,656
241
10,401
3,827
25,765
3,587
833
44,413
5,593
530
464
153
28
378
7,146
10,544
3,861
1,055
604
23,210
1,000
-
7
(7,482)
11,060
10,206
(234)
13,557
6,646
20,203
44,413
$
$
$
$
$
2,927
5,225
192
9,471
3,622
25,164
4,019
839
43,115
4,743
503
460
184
29
426
6,345
11,896
3,285
1,179
735
23,440
-
-
7
(7,275)
11,071
9,752
(318)
13,237
6,438
19,675
43,115
$
Marathon Petroleum Corporation
Consolidated Statements of Cash Flows
(In millions)
2016
2015
2014
Increase (decrease) in cash and cash equivalents
Operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred financing costs and debt discount
Impairment expense
Depreciation and amortization
Inventory market valuation adjustment
Pension and other postretirement benefits, net
Deferred income taxes
Net gain on disposal of assets
(Income) loss from equity method investments
Distributions from equity method investments
Changes in the fair value of derivative instruments
Changes in:
Current receivables
Inventories
Current accounts payable and accrued liabilities
All other, net
Net cash provided by operating activities
Investing activities:
Additions to property, plant and equipment
Acquisitions, net of cash acquired
Disposal of assets
Investments – acquisitions, loans and contributions
– redemptions, repayments and return of capital
All other, net
Net cash used in investing activities
Financing activities:
Commercial paper – issued
– repayments
Long-term debt – borrowings
– repayments
Debt issuance costs
Issuance of common stock
Common stock repurchased
Dividends paid
Issuance of MPLX LP common units
Issuance of MPLX LP redeemable preferred units
Distributions to noncontrolling interests
Contingent consideration payment
All other, net
Net cash provided by (used in) financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
The accompanying notes are an integral part of these consolidated financial statements.
111
$ 1,213
$
2,868
$
2,555
61
130
2,001
(370)
9
394
(32)
185
291
(41)
(674)
(70)
985
(96)
3,986
(2,892)
-
101
(288)
26
112
(2,941)
1,263
(1,263)
864
(2,269)
(11)
11
(197)
(719)
776
984
(542)
(164)
(18)
(1,285)
(240)
1,127
887
$
16
144
1,502
370
80
134
(7)
(88)
113
4
1,292
80
(2,400)
(47)
4,061
(1,998)
(1,218)
21
(331)
4
81
(3,441)
-
-
2,993
(2,226)
(21)
33
(965)
(613)
-
-
(40)
(175)
27
(987)
(367)
1,494
1,127
$
27
-
1,326
-
151
(242)
(21)
(153)
170
(3)
1,642
(786)
(1,547)
(9)
3,110
(1,480)
(2,821)
27
(413)
9
135
(4,543)
-
-
3,793
(548)
(22)
26
(2,131)
(524)
221
-
(27)
(172)
19
635
(798)
2,292
1,494
$
Marathon Petroleum Corporation
Consolidated Statements of Equity and Redeemable Noncontrolling Interest
(In millions)
Balance as of December 31, 2013
Net income
Dividends declared
Distributions to noncontrolling interests
Other comprehensive loss
Shares repurchased
Shares issued (returned) – stock-based
compensation
Stock-based compensation
Impact from equity transactions of MPLX LP
Other
Balance as of December 31, 2014
Net income
Dividends declared
Distributions to noncontrolling interests
Other comprehensive loss
Shares repurchased
Shares issued (returned) – stock-based
compensation
Stock-based compensation
Impact from equity transactions of MPLX LP
Noncontrolling interest – MarkWest Merger
Other
Balance as of December 31, 2015
Net income (loss)
Dividends declared
Distributions to noncontrolling interests
Other comprehensive income
Shares repurchased
Shares issued (returned) – stock-based
compensation
Stock-based compensation
Impact from equity transactions of MPLX LP
Issuance of MPLX LP redeemable preferred units
Other
Balance as of December 31, 2016
MPC Stockholders’ Equity
Common
Stock
Treasury
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Non-
controlling
Interests
Total
Equity
Redeemable
Non-
controlling
Interest
$
$
$
$
7 $
-
-
-
-
-
-
-
-
-
7 $
-
-
-
-
-
-
-
-
-
-
7 $
-
-
-
-
-
-
-
-
-
-
7 $
(4,155) $
9,765 $
-
-
-
-
(2,131)
(13)
-
-
-
-
-
-
-
-
26
50
-
-
(6,299) $
9,841 $
-
-
-
-
(965)
(11)
-
-
-
-
-
-
-
-
-
33
69
1,128
-
-
(7,275) $
11,071 $
-
-
-
-
(197)
(10)
-
-
-
-
-
-
-
-
-
11
35
(57)
-
-
(7,482) $
11,060 $
5,507
2,524
(525)
-
-
-
-
-
-
9
7,515
2,852
(615)
-
-
-
-
-
-
-
-
9,752
1,174
(720)
-
-
-
-
-
-
-
-
10,206
$
$
$
$
(204)
-
-
-
(109)
-
-
-
-
-
(313)
-
-
-
(5)
-
-
-
-
-
-
(318)
-
-
-
84
-
-
-
-
-
-
(234)
$
$
$
412 $
31
-
(27)
-
-
-
2
221
-
639 $
16
-
(40)
-
-
-
16
5,795
13
(1)
6,438 $
(2)
-
(517)
-
-
-
6
715
-
11,332
2,555
(525)
(27)
(109)
(2,131)
13
52
221
9
11,390
2,868
(615)
(40)
(5)
(965)
22
85
6,923
13
(1)
19,675
1,172
(720)
(517)
84
(197)
1
41
658
-
$
6
6,646 $
6
20,203
$
$
-
41
-
(25)
-
-
-
-
-
984
-
1,000
(Shares in millions)
Balance as of December 31, 2013
Shares repurchased
Shares issued – stock-based compensation
Balance as of December 31, 2014
Shares repurchased
Shares issued – stock-based compensation
Balance as of December 31, 2015
Shares repurchased
Shares issued (returned) – stock-based
compensation
Balance as of December 31, 2016
Common
Stock
Treasury
Stock
724
-
2
726
-
3
729
-
2
731
(130)
(49)
-
(179)
(19)
-
(198)
(4)
(1)
(203)
The accompanying notes are an integral part of these consolidated financial statements.
112
Notes to Consolidated Financial Statements
1. Description of the Business and Basis of Presentation
Description of the Business – Our business consists of refining and marketing, retail and midstream services
conducted primarily in the Midwest, Gulf Coast, East Coast, Northeast and Southeast regions of the United
States, through subsidiaries, including Marathon Petroleum Company LP, Speedway LLC and its subsidiaries
(“Speedway”) and MPLX LP and its subsidiaries (“MPLX”).
See Note 10 for additional information about our operations.
Spinoff – On May 25, 2011, the Marathon Oil board of directors approved the spinoff of its Refining,
Marketing & Transportation Business (“RM&T Business”) into an independent, publicly traded company, MPC,
through the distribution of MPC common stock to the stockholders of Marathon Oil common stock (the
“Spinoff”). MPC became an independent, publicly traded company on July 1, 2011.
Basis of Presentation – Our results of operations and cash flows consist of consolidated MPC activities. All
significant intercompany transactions and accounts have been eliminated.
Certain prior period financial statement amounts have been reclassified to conform to current period presentation.
In the first quarter of 2016, we revised our segment reporting in connection with the contribution of our inland
marine business to MPLX. See Note 4 for additional information. The operating results for our inland marine
business and our investment in an ocean vessel joint venture, Crowley Ocean Partners LLC (“Crowley Ocean
Partners”) are now reported in our Midstream segment. Previously they were reported as part of our Refining &
Marketing segment. Comparable prior period information has been recast
to reflect our revised segment
presentation. See Note 10 for additional information.
2. Summary of Principal Accounting Policies
Principles applied in consolidation – These consolidated financial statements include the accounts of our
majority-owned, controlled subsidiaries and MPLX. Changes in ownership interest in consolidated subsidiaries
that do not result in a change in control are recorded as an equity transaction. As of December 31, 2016, we
owned a 25.5 percent interest in MPLX, including a two percent general partner interest. This ownership
percentage reflects the conversion of the MPLX Class B Units in July 2017 at 1.09 to 1.00. Due to our
100 percent ownership of the general partner interest, we have determined that we control MPLX and therefore
we consolidate MPLX and record a noncontrolling interest for the 74.5 percent interest owned by the public.
Investments in entities over which we have significant influence, but not control, are accounted for using the
equity method of accounting. This includes entities in which we hold majority ownership but the minority
shareholders have substantive participating rights. Income from equity method investments represents our
proportionate share of net income generated by the equity method investees.
Differences in the basis of the investments and the separate net asset values of the investees, if any, are amortized
into net income over the remaining useful lives of the underlying assets and liabilities, except for the excess
related to goodwill. Equity method investments are evaluated for impairment whenever changes in the facts and
circumstances indicate an other than temporary loss in value has occurred. When the loss is deemed to be other
than temporary, the carrying value of the equity method investment is written down to fair value, and the amount
of the write-down is included in net income.
Use of estimates – The preparation of financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the respective reporting periods.
113
Revenue recognition – Revenues are recognized when products are shipped or services are provided to
customers,
the sales price is fixed or determinable and collectability is reasonably
assured. Costs associated with revenues are recorded in cost of revenues. Shipping and other transportation costs
billed to our customers are presented on a gross basis in revenues and cost of revenues.
title is transferred,
Rebates from vendors are recognized as a reduction of cost of revenues when the initiating transaction
occurs. Incentives that are derived from contractual provisions are accrued based on past experience and
recognized in cost of revenues. Rebates to customers are reflected as a reduction of revenue and are accrued for
in “Accounts payable” on the consolidated balance sheets.
Crude oil and refined product exchanges and matching buy/sell transactions – We enter into exchange
contracts and matching buy/sell arrangements whereby we agree to deliver a particular quantity and quality of
crude oil or refined products at a specified location and date to a particular counterparty and to receive from the
same counterparty the same commodity at a specified location on the same or another specified date. The
exchange receipts and deliveries are nonmonetary transactions, with the exception of associated grade or location
differentials that are settled in cash. The matching buy/sell purchase and sale transactions are settled in
cash. Both exchange and matching buy/sell transactions are accounted for as exchanges of inventory and no
revenues are recorded. The exchange transactions are recognized at the carrying amount of the inventory
transferred.
Consumer excise taxes – We are required by various governmental authorities, including countries, states and
municipalities, to collect and remit taxes on certain consumer products. Such taxes are presented on a gross basis
in revenues and costs and expenses in the consolidated statements of income.
Cash and cash equivalents – Cash and cash equivalents include cash on hand and on deposit and investments in
highly liquid debt instruments with maturities of three months or less.
Restricted cash – Restricted cash consists of cash and investments that must be maintained as collateral for
letters of credit issued to certain third party producer customers. The balances will be outstanding until certain
capital projects are completed and the third party releases the restriction. Restricted cash also consists of cash
advances to be used for the operation and maintenance of an operated pipeline system. At December 31, 2016
and 2015, the amount of restricted cash included in “Other current assets” on the consolidated balance sheets
were $5 million and $9 million, respectively, which is currently reflected in our Midstream segment.
Accounts receivable and allowance for doubtful accounts – Our receivables primarily consist of customer
accounts receivable. Customer receivables are recorded at the invoiced amounts and generally do not bear
interest. Allowances for doubtful accounts are generally recorded when it becomes probable the receivable will
not be collected and are booked to bad debt expense. The allowance for doubtful accounts is the best estimate of
the amount of probable credit losses in customer accounts receivable. We review the allowance quarterly and
past-due balances over 180 days are reviewed individually for collectability.
Approximately 23 percent and 26 percent of our accounts receivable balances at December 31, 2016 and 2015,
respectively, are related to sales of crude oil or refinery feedstocks to customers with whom we have master
netting agreements. We have master netting agreements with more than 100 companies engaged in the crude oil
or refinery feedstock trading and supply business or the petroleum refining industry. A master netting agreement
generally provides for a once per month net cash settlement of the accounts receivable from and the accounts
payable to a particular counterparty.
Inventories – Inventories are carried at the lower of cost or market value. Cost of inventories is determined
primarily under the LIFO method. Costs for crude oil, refinery feedstocks and refined product inventories are
aggregated on a consolidated basis for purposes of assessing if the LIFO cost basis of these inventories may have
to be written down to market value.
114
Derivative instruments – We use derivatives to economically hedge a portion of our exposure to commodity
price risk and, historically, to interest rate risk. We also have limited authority to use selective derivative
instruments that assume market risk. All derivative instruments (including derivative instruments embedded in
other contracts) are recorded at fair value. Certain commodity derivatives are reflected on the consolidated
balance sheets on a net basis by counterparty as they are governed by master netting agreements. Cash flows
related to derivatives used to hedge commodity price risk and interest rate risk are classified in operating
activities with the underlying transactions.
Fair value accounting hedges – We used interest rate swaps to hedge our exposure to interest rate risk associated
with fixed interest rate debt in our portfolio. These interest rate swap agreements were terminated in 2012.
Changes in the fair values of both the hedged item and the related derivative were recognized immediately in net
income with an offsetting effect included in the basis of the hedged item. The net effect was to report in net
income the extent to which the accounting hedge was not effective in achieving offsetting changes in fair
value. There was a gain on the termination of the agreements, which had been deferred and accounted for as an
adjustment to our long-term debt balance. The gain was being amortized over the remaining life of the associated
debt as a reduction of our interest expense, until the December 2015 extinguishment of our obligation for the
associated debt. At such time, the remaining unamortized gain was credited to net interest and other financial
income (costs).
Derivatives not designated as accounting hedges – Derivatives that are not designated as accounting hedges may
include commodity derivatives used to hedge price risk on (1) inventories, (2) fixed price sales of refined
products, (3) the acquisition of foreign-sourced crude oil, (4) the acquisition of ethanol for blending with refined
products, (5) the sale of NGLs, (6) the purchase of natural gas and (7) the purchase of electricity. Changes in the
fair value of derivatives not designated as accounting hedges are recognized immediately in net income.
Concentrations of credit risk – All of our financial instruments, including derivatives, involve elements of credit
and market risk. The most significant portion of our credit risk relates to nonperformance by counterparties. The
counterparties to our financial instruments consist primarily of major financial institutions and companies within
the energy industry. To manage counterparty risk associated with financial instruments, we select and monitor
counterparties based on an assessment of their financial strength and on credit ratings, if available. Additionally,
we limit the level of exposure with any single counterparty.
Property, plant and equipment – Property, plant and equipment are recorded at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets, which range from two to 42 years. Such assets are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. If the sum of the expected undiscounted future cash flows from the use of the asset
and its eventual disposition is less than the carrying amount of the asset, an impairment loss is recognized based
on the fair value of the asset.
When items of property, plant and equipment are sold or otherwise disposed of, any gains or losses are reported
in net income. Gains on the disposal of property, plant and equipment are recognized when earned, which is
generally at the time of closing. If a loss on disposal is expected, such losses are recognized when the assets are
classified as held for sale.
Interest expense is capitalized for qualifying assets under construction. Capitalized interest costs are included in
property, plant and equipment and are depreciated over the useful life of the related asset.
Goodwill and intangible assets – Goodwill represents the excess of the purchase price over the estimated fair
value of the net assets acquired in the acquisition of a business. Goodwill is not amortized, but rather is tested for
impairment annually and when events or changes in circumstances indicate that the fair value of a reporting unit
with goodwill has been reduced below carrying value. The impairment test requires allocating goodwill and other
assets and liabilities to reporting units. The fair value of each reporting unit is determined and compared to the
115
carrying value of the reporting unit. If the fair value of the reporting unit is less than the carrying value, including
goodwill, the implied fair value of goodwill is calculated. The excess, if any, of the book value over the implied
fair value of goodwill is charged to net income as an impairment expense.
Amortization of intangibles with definite lives is calculated using the straight-line method which is reflective of
the benefit pattern in which the estimated economic benefit is expected to be received over the estimated useful
life of the intangible asset. Intangibles subject to amortization are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the intangible may not be recoverable. If the sum
of the expected undiscounted future cash flows related to the asset is less than the carrying amount of the asset,
an impairment loss is recognized based on the fair value of the asset. Intangibles not subject to amortization are
tested for impairment annually and when circumstances indicate that the fair value is less than the carrying
amount of the intangible. If the fair value is less than the carrying value, an impairment is recorded for the
difference.
Major maintenance activities – Costs for planned turnaround, major maintenance and engineered project
activities are expensed in the period incurred. These types of costs include contractor repair services, materials
and supplies, equipment rentals and our labor costs.
Environmental costs – Environmental expenditures are capitalized for additional equipment that mitigates or
prevents future contamination or improves environmental safety or efficiency of the existing assets. We
recognize remediation costs and penalties when the responsibility to remediate is probable and the amount of
associated costs can be reasonably estimated. The timing of remediation accruals coincides with completion of a
feasibility study or the commitment to a formal plan of action. Remediation liabilities are accrued based on
estimates of known environmental exposure and are discounted when the estimated amounts are reasonably fixed
and determinable. If recoveries of remediation costs from third parties are probable, a receivable is recorded and
is discounted when the estimated amount is reasonably fixed and determinable.
Asset retirement obligations – The fair value of asset retirement obligations is recognized in the period in which
the obligations are incurred if a reasonable estimate of fair value can be made. The majority of our recognized
asset retirement liability relates to conditional asset retirement obligations for removal and disposal of fire-
retardant material from certain refining facilities. The remaining recognized asset retirement liability relates to
other refining assets, the removal of underground storage tanks at our leased convenience stores, certain pipelines
and processing facilities and other related pipeline assets. The fair values recorded for such obligations are based
on the most probable current cost projections. The recorded asset retirement obligations are not material to the
consolidated financial statements.
Asset retirement obligations have not been recognized for some assets because the fair value cannot be
reasonably estimated since the settlement dates of the obligations are indeterminate. Such obligations will be
recognized in the period when sufficient
information becomes available to estimate a range of potential
settlement dates. The asset retirement obligations principally include the hazardous material disposal and
removal or dismantlement requirements associated with the closure of certain refining, terminal, retail, pipeline
and processing assets.
Our practice is to keep our assets in good operating condition through routine repair and maintenance of
component parts in the ordinary course of business and by continuing to make improvements based on
technological advances. As a result, we believe that generally these assets have no expected settlement date for
purposes of estimating asset retirement obligations since the dates or ranges of dates upon which we would retire
these assets cannot be reasonably estimated at this time.
Income taxes – Deferred tax assets and liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of assets and liabilities and their tax
bases. Deferred tax assets are recorded when it is more likely than not that they will be realized. The realization
of deferred tax assets is assessed periodically based on several factors, primarily our expectation to generate
sufficient future taxable income.
116
Stock-based compensation arrangements – The fair value of stock options granted to our employees is estimated
on the date of grant using the Black-Scholes option pricing model. The model employs various assumptions,
based on management’s estimates at the time of grant, which impact the calculation of fair value and ultimately,
the amount of expense that is recognized over the vesting period of the stock option award. Of the required
assumptions, the expected life of the stock option award and the expected volatility of our stock price have the
most significant impact on the fair value calculation. The average expected life is based on our historical
employee exercise behavior. The assumption for expected volatility of our stock price reflects a weighting of
50 percent of our common stock implied volatility and 50 percent of our common stock historical volatility.
The fair value of restricted stock awards granted to our employees is determined based on the fair market value
of our common stock on the date of grant. The fair value of performance unit awards granted to our employees is
estimated on the date of grant using a Monte Carlo valuation model.
Our stock-based compensation expense is recognized based on management’s estimate of the awards that are
expected to vest, using the straight-line attribution method for all service-based awards with a graded vesting
feature. If actual forfeiture results are different than expected, adjustments to recognized compensation expense
may be required in future periods. Unearned stock-based compensation is charged to equity when restricted stock
awards are granted. Compensation expense is recognized over the vesting period and is adjusted if conditions of
the restricted stock award are not met.
Business combinations – We recognize and measure the assets acquired and liabilities assumed in a business
combination based on their estimated fair values at the acquisition date, with any remaining difference versus the
purchase consideration recorded as goodwill or gain from a bargain purchase. For all material acquisitions,
management engages an independent valuation specialist to assist with the determination of fair value of the
assets acquired, liabilities assumed, noncontrolling interest, if any, and goodwill, based on recognized business
valuation methodologies. If the initial accounting for the business combination is incomplete by the end of the
reporting period in which the acquisition occurs, an estimate will be recorded. Subsequent to the acquisition, and
not later than one year from the acquisition date, we will record any material adjustments to the initial estimate
based on new information obtained about facts and circumstances that existed as of the acquisition date. An
income, market or cost valuation method may be utilized to estimate the fair value of the assets acquired,
liabilities assumed, and noncontrolling interest, if any, in a business combination. The income valuation method
represents the present value of future cash flows over the life of the asset using: (i) discrete financial forecasts,
which rely on management’s estimates of revenue and operating expenses; (ii) long-term growth rates; and
(iii) appropriate discount rates. The market valuation method uses prices paid for a reasonably similar asset by
other purchasers in the market, with adjustments relating to any differences between the assets. The cost
valuation method is based on the replacement cost of a comparable asset at prices at the time of the acquisition
reduced for depreciation of the asset. Acquisition-related costs are expensed as incurred in connection with each
business combination.
Renewable fuel identification numbers – We purchase RINs to satisfy a portion of our RFS2 compliance. We
record a short-term intangible asset, included in “Other current assets” on the balance sheet, for RINs owned in
excess of our anticipated current period compliance requirements. The asset value is based on the product of the
excess RINs as of the balance sheet date, if any, and the average cost of our RINs. We record a current liability,
included in “Other current liabilities” on the balance sheet, when we are deficient RINs based on the product of
the deficient RINs as of the balance sheet date, if any, and the market price of the RINs at the balance sheet
date. The cost of RINs used for compliance is reflected in “Cost of revenues” on the income statement. Any gains
or losses on the sale or expiration of RINs are classified as “Other income” on the income statement. Proceeds
from RIN sales are included in investing activities –“All other, net” on the cash flow statement.
117
3. Accounting Standards
Recently Adopted
In September 2015, the FASB issued an accounting standard update that eliminates the requirement to restate
prior period financial statements for measurement period adjustments related to business combinations. This
accounting standard update requires that
the cumulative impact of a measurement period adjustment be
recognized in the reporting period in which the adjustment is identified. The change was effective for interim and
annual periods beginning after December 15, 2015. We recognized measurement period adjustments during the
first and second quarters of 2016 on a cumulative prospective basis as additional analysis was completed on the
preliminary purchase price allocation for the acquisition of MarkWest Energy Partners, L.P. (“MarkWest”). See
Note 5 for further discussion and detail related to these measurement period adjustments.
In May 2015, the FASB issued an accounting standard update that eliminates the requirement to categorize
investments that are measured at net asset value using the practical expedient in the fair value hierarchy. The
change was effective for fiscal years beginning after December 15, 2015 and interim periods within the fiscal
year. Retrospective application is required. Adoption of this accounting standard update in the first quarter of
2016 did not have a material impact on our disclosures.
In April 2015, the FASB issued an accounting standard update clarifying whether a customer should account for
a cloud computing arrangement as an acquisition of a software license or as a service arrangement by providing
characteristics that a cloud computing arrangement must have in order to be accounted for as a software license
acquisition. The change was effective for fiscal years and interim periods within those fiscal years beginning
after December 15, 2015. Retrospective or prospective application is allowed. We adopted this accounting
standard update prospectively in the first quarter of 2016 and it did not have a material impact on our
consolidated financial statements.
In February 2015, the FASB issued an accounting standard update making targeted changes to the current
consolidation guidance. The accounting standard update changes the considerations related to substantive rights,
related parties, and decision making fees when applying the VIE consolidation model and eliminates certain
guidance for limited partnerships and similar entities under the voting interest consolidation model. The change
was effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2015.
Under the accounting standard update, we continue to consolidate our master limited partnership, MPLX, but it is
now considered to be a VIE. The adoption of this accounting standard update in the first quarter of 2016 did
impact our disclosures for this consolidated VIE, but did not have a material impact on our consolidated financial
statements.
In August 2014, the FASB issued an accounting standard update requiring management to assess an entity’s
ability to continue as a going concern and to provide related footnote disclosures in certain circumstances.
Management is required to assess if there is substantial doubt about an entity’s ability to continue as a going
concern within one year after the issuance of the financial statements. Disclosures are required if conditions give
rise to substantial doubt and the type of disclosure is determined based on whether management’s plans will be
able to alleviate the substantial doubt. The change was effective for the first fiscal year ending after
December 15, 2016, and for fiscal years and interim periods thereafter. The adoption of this accounting standard
update in the fourth quarter of 2016 did not have a material impact on our disclosures.
In June 2014, the FASB issued an accounting standard update for the elimination of the concept of development
stage entity (“DSE”) from U.S. GAAP and removes the related incremental reporting. The accounting standard
update eliminated the additional financial statement requirements specific to a DSE and was adopted in the first
quarter of 2015. In addition, the portion of the accounting standard update that amended the consolidation model
to eliminate the special provisions in the VIE rules for assessing the sufficiency of the equity of a DSE was
adopted in the first quarter of 2016. Adoption of this accounting standard update in the first quarters of 2015 and
2016 did not have an impact on our consolidated financial statements.
118
Not Yet Adopted
In January 2017, the FASB issued an accounting standard update which simplifies the subsequent measurement
of goodwill by eliminating Step 2 from the goodwill impairment test. Under the new guidance, the recognition of
an impairment charge is calculated based on the amount by which the carrying amount exceeds the reporting
unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that
reporting unit. The guidance should be applied on a prospective basis, and is effective for annual or any interim
goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for
interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.
In January 2017, the FASB issued an accounting standard update to clarify the definition of a business with the
objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as
acquisitions (or disposals) of assets or businesses. The standard is intended to narrow the definition of a business
by specifying the minimum inputs and processes and by narrowing the definition of outputs. The change is
effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The
guidance will be applied prospectively and early adoption is permitted for certain transactions. We are in the
process of determining the impact of the accounting standard update on the consolidated financial statements.
In November 2016, the FASB issued an accounting standard update requiring that the statement of cash flows
explain the change during the period in the total of cash, cash equivalents, and amounts generally described as
restricted cash or restricted cash equivalents. The change is effective for fiscal years beginning after
December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. Retrospective
application is required. The application of this accounting standard update will not have a material impact on our
statements of cash flows.
In October 2016, the FASB issued an accounting standard update to amend the consolidation guidance issued in
February 2015 to require that a decision maker consider, in the determination of the primary beneficiary, its
indirect interest in a VIE held by a related party that is under common control on a proportionate basis only. The
change is effective for our financial statements for fiscal years beginning after December 15, 2016, and interim
periods within those fiscal years, with early adoption permitted. We are required to apply the standard
retrospective to January 1, 2016, the date on which we adopted the consolidation guidance issued in February
2015. We have analyzed this accounting standard update and do not expect there to be an impact on our
consolidated financial statements.
In October 2016, the FASB issued an accounting standard update that requires recognition of the income tax
consequences of intra-entity transfers of assets other than inventory when the transfer occurs. The change is
effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with
early adoption permitted. The amendments in this accounting standard update should be applied on a modified
retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the
period of adoption. We do not expect application of this accounting standard update to have a material impact on
our consolidated financial statements.
In August 2016, the FASB issued an accounting standard update related to the classification of certain cash
flows. The accounting standard update provides specific guidance on eight cash flow classification issues,
including debt prepayment or debt extinguishment costs, contingent consideration payments made after a
business combination and distributions received from equity method investees, to reduce diversity in practice.
The change is effective for fiscal years beginning after December 15, 2017, and interim periods within those
fiscal years, with early adoption permitted. We do not expect application of this accounting standard update to
have a material impact on our statements of cash flows.
In June 2016, the FASB issued an accounting standard update related to the accounting for credit losses on
certain financial instruments. The guidance requires that for most financial assets, losses be based on an expected
119
loss approach which includes estimates of losses over the life of exposure that considers historical, current and
forecasted information. Expanded disclosures related to the methods used to estimate the losses as well as a
specific disaggregation of balances for financial assets are also required. The change is effective for fiscal years
beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted
for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. We do not
expect application of this accounting standard update to have a material impact on our consolidated financial
statements.
the FASB issued an accounting standard update to simplify some provisions in stock
In March 2016,
compensation accounting. The areas for simplification involve the accounting for share-based payment
transactions, including income tax consequences, classifications of awards as either equity or liabilities and
classification within the statement of cash flows. The changes are effective for fiscal years beginning after
December 15, 2016, and interim periods within those years, and early adoption is permitted. Adoption of this
accounting standard update in the first quarter of 2017 will not have a material impact on our consolidated
financial statements.
In March 2016, the FASB issued an accounting standard update eliminating the requirement that an investor
retrospectively apply equity method accounting when an investment that it had accounted for by another method
initially qualifies for the equity method. This change will be effective for fiscal years beginning after
December 15, 2016, and interim periods within those years. The guidance will be applied prospectively and early
adoption is permitted. We do not expect application of this accounting standard update to have a material impact
on our consolidated financial statements.
In February 2016, the FASB issued an accounting standard update requiring lessees to record virtually all leases
on their balance sheets. The accounting standard update also requires expanded disclosures to help financial
statement users better understand the amount, timing and uncertainty of cash flows arising from leases. For
lessors, this amended guidance modifies the classification criteria and the accounting for sales-type and direct
financing leases. The change will be effective on a modified retrospective basis for fiscal years beginning after
December 15, 2018, and interim periods within those years, with early adoption permitted. We are currently
internal controls and
evaluating the impact of this standard on our financial statements and disclosures,
accounting policies. This evaluation process includes reviewing all forms of leases, performing a completeness
assessment over lease population and analyzing the practical expedients in order to determine the best path of
implementation. We expect to recognize an asset and obligation related to leases previously accounted for as
operating leases.
In January 2016, the FASB issued an accounting standard update requiring unconsolidated equity investments,
not accounted for under the equity method, to be measured at fair value with changes in fair value recognized in
net income. The accounting standard update also requires the use of the exit price notion when measuring the fair
value of financial instruments for disclosure purposes and the separate presentation of financial assets and
liabilities by measurement category and form on the balance sheet and accompanying notes. The accounting
standard update eliminates the requirement to disclose the methods and assumptions used in estimating the fair
value of financial instruments measured at amortized cost. Lastly, the accounting standard update requires
separate presentation in other comprehensive income of the portion of the total change in the fair value of a
liability resulting from a change in the instrument-specific credit risk when electing to measure the liability at fair
value in accordance with the fair value option for financial instruments. The changes are effective for fiscal years
and interim periods within those fiscal years beginning after December 15, 2017. Early adoption is permitted
only for the guidance regarding presentation of a liability’s credit risk. We do not expect application of this
accounting standard update to have a material impact on our consolidated financial statements.
In May 2014, the FASB issued an accounting standard update for revenue recognition for contracts with
customers. The guidance in the accounting standard update states that revenue is recognized when a customer
obtains control of a good or service. Recognition of the revenue will involve a multiple step approach including
120
identifying the contract, identifying the separate performance obligations, determining the transaction price,
allocating the price to the performance obligations and then recognizing the revenue as the obligations are
satisfied. Additional disclosures will be required to provide adequate information to understand the nature,
amount, timing and uncertainty of reported revenues and revenues expected to be recognized. The change will be
effective on a retrospective or modified retrospective basis for fiscal years beginning after December 15, 2017,
and interim periods within those years, with early adoption permitted, no earlier than January 1, 2017. We are
currently evaluating the impact of this standard on our financial statements and disclosures, internal controls and
accounting policies. This evaluation process is primarily focused on reviewing service contracts and transaction
types across our Midstream segment. We are also evaluating the election allowing for net reporting included in
the accounting standard update for consumer excise taxes. In addition, we are currently evaluating the methods of
adoption.
4. MPLX LP
MPLX is a diversified, growth-oriented publicly traded master limited partnership initially formed by us to own,
operate, develop and acquire midstream assets related to the transportation and storage of hydrocarbon-based
products, including crude oil, refined products, natural gas and NGLs. On December 4, 2015, MPLX and
MarkWest Energy Partners, L.P. (“MarkWest”) completed a merger, whereby MarkWest became a wholly-
owned subsidiary of MPLX (the “MarkWest Merger”). MarkWest’s operations include: natural gas gathering,
processing and transportation; and NGL gathering, transportation, fractionation, storage and marketing. MPLX’s
other assets include a 100 percent interest in MPLX Pipe Line Holdings LLC (“Pipe Line Holdings”), which
owns a network of common carrier crude oil and product pipeline systems and associated storage assets in the
Midwest and Gulf Coast regions of the United States and a 100 percent interest in a butane cavern in Neal, West
Virginia. MPLX also owns an inland marine business, which is comprised of 18 tow boats and approximately
200 barges which transports crude oil and refined products principally for MPC in the Midwest and Gulf Coast
regions of the United States.
See Note 5 for information on MPLX’s investment in the Bakken Pipeline system.
As of December 31, 2016, we owned a 25.5 percent interest in MPLX, including a two percent general partner
interest. This ownership percentage reflects the conversion of the MPLX Class B Units in July 2017 at 1.09 to
1.00. MPLX is a VIE because the limited partners of MPLX do not have substantive kick-out or substantive
participating rights over the general partner. We are the primary beneficiary of MPLX because in addition to our
significant economic interest, we also have the power, through our 100 percent ownership of the general partner,
to control the decisions that most significantly impact MPLX. We therefore consolidate MPLX and record a
noncontrolling interest for the 74.5 percent interest owned by the public. The components of our noncontrolling
interest consist of equity-based noncontrolling interest and redeemable noncontrolling interest. The redeemable
noncontrolling interest relates to MPLX’s preferred units, discussed below.
The creditors of MPLX do not have recourse to MPC’s general credit through guarantees or other financial
arrangements. The assets of MPLX are the property of MPLX and cannot be used to satisfy the obligations of
MPC.
Reorganization Transactions
On September 1, 2016, MPC, MPLX and various affiliates initiated a series of reorganization transactions in
order to simplify MPLX’s ownership structure and its financial and tax reporting. In connection with these
transactions, MPC contributed $225 million to MPLX, and all of the issued and outstanding MPLX Class A
Units, all of which were held by MarkWest Hydrocarbon L.L.C. (“MarkWest Hydrocarbon”), a subsidiary of
MPLX, were exchanged for newly issued common units representing limited partner interests in MPLX. The
simple average of the closing prices of MPLX common units for the last 10 trading days prior to September 1,
2016 was used for purposes of these transactions. As a result of these transactions, MPC increased its ownership
interest in MPLX by 7 million MPLX common units, or approximately 1 percent.
121
Private Placement of Preferred Units
On May 13, 2016, MPLX completed the private placement of approximately 30.8 million 6.5 percent Series A
Convertible Preferred Units (the “MPLX Preferred Units”) at a cash price of $32.50 per unit. The aggregate net
proceeds of approximately $984 million from the sale of the MPLX Preferred Units was used for capital
expenditures, repayment of debt and general partnership purposes.
The MPLX Preferred Units rank senior to all MPLX common units with respect to distributions and rights upon
liquidation. The holders of the MPLX Preferred Units are entitled to receive quarterly distributions equal to
$0.528125 per unit commencing for the quarter ended June 30, 2016, with a prorated amount from the date of
issuance. Following the second anniversary of the issuance of the MPLX Preferred Units, the holders of the
MPLX Preferred Units will receive as a distribution the greater of $0.528125 per unit or the amount of per unit
distributions paid to common unitholders. The MPLX Preferred Units are convertible into MPLX common units
on a one for one basis after three years, at the purchasers’ option, and after four years at MPLX’s option, subject
to certain conditions.
The MPLX Preferred Units are considered redeemable securities due to the existence of redemption provisions
upon a deemed liquidation event which is considered outside MPLX’s control. Therefore they are presented as
temporary equity in the mezzanine section of the consolidated balance sheets. We have recorded the MPLX
Preferred Units at their issuance date fair value, net of issuance costs. Since the MPLX Preferred Units are not
currently redeemable and not probable of becoming redeemable in the future, adjustment to the initial carrying
amount is not necessary and would only be required if it becomes probable that the security would become
redeemable.
Dropdowns to MPLX
On March 1, 2014, we sold MPLX a 13 percent interest in Pipe Line Holdings for $310 million. MPLX financed
this transaction with $40 million of cash on-hand and $270 million of borrowings on its bank revolving credit
facility.
On December 1, 2014, we sold and contributed interests in Pipe Line Holdings totaling 30.5 percent to MPLX for
$600 million in cash and 2.9 million MPLX common units valued at $200 million. MPLX financed the sales
portion of this transaction with $600 million of borrowings on its bank revolving credit facility.
On December 4, 2015, we sold our remaining 0.5 percent interest in Pipe Line Holdings to MPLX for
$12 million. As a result, MPLX now owns 100 percent of Pipe Line Holdings.
The sales and contribution of our interests in Pipe Line Holdings to MPLX resulted in a change of our ownership
in Pipe Line Holdings, but not a change in control. We accounted for these sales as transactions between entities
under common control and did not record a gain or loss.
On March 31, 2016, we contributed our inland marine business to MPLX in exchange for 23 million MPLX
common units and 460 thousand MPLX general partner units. The number of units we received from MPLX was
determined by dividing $600 million by the volume weighted average NYSE price of MPLX common units for
the 10 trading days preceding March 14, 2016, pursuant to the Membership Interests Contribution Agreement.
We also agreed to waive first-quarter 2016 common unit distributions, IDRs and general partner distributions
with respect to the common units issued in this transaction. The contribution of our inland marine business was
accounted for as a transaction between entities under common control and therefore, we did not record a gain or
loss.
On December 5, 2016, our board of directors authorized us to offer up to 100 percent of MPLX Terminals LLC
(“MPLX Terminals”), Hardin Street Transportation LLC (“Hardin Street Transportation”) and Woodhaven
122
Cavern LLC (“Woodhaven Cavern”) to MPLX. MPLX Terminals owns and operates terminal and marine
facilities. Hardin Street Transportation owns and operates various private crude oil and refined product pipeline
systems and associated storage tanks as well as several condensate truck loading and unloading facilities.
Woodhaven Cavern owns and operates butane and propane storage caverns. The transaction is expected to close
in the first quarter of 2017, pending requisite approvals.
Public Offerings
On December 8, 2014, MPLX completed a public offering of 3.5 million common units at a price to the public of
$66.68 per MPLX common unit, with net proceeds of $221 million. MPLX used the net proceeds from this
offering to repay borrowings under its bank revolving credit facility and for general partnership purposes.
On February 12, 2015, MPLX completed a public offering of $500 million aggregate principal amount of four
percent unsecured senior notes due February 15, 2025. See Note 19 for more information.
ATM Program
On August 4, 2016, MPLX entered into a Second Amended and Restated Distribution Agreement (the
“Distribution Agreement”) providing for the continuous issuance of common units, in amounts, at prices and on
terms to be determined by market conditions and other factors at the time of any offerings (such continuous
offering program, or at-the-market program, referred to as the “ATM Program”). MPLX expects to use the net
proceeds from sales under the ATM Program for general partnership purposes including repayment of debt and
funding for acquisitions, working capital requirements and capital expenditures.
During 2016, MPLX issued an aggregate of 26 million MPLX common units under the ATM Program,
generating net proceeds of approximately $776 million. As of December 31, 2016, $717 million of MPLX
common units remains available for issuance through the ATM Program under the Distribution Agreement.
Noncontrolling Interest
Changes in MPC’s equity resulting from changes in its ownership interest in MPLX were as follows:
(In millions)
Transfers (to) from noncontrolling interest
Increase (decrease) in MPC’s paid in capital for the issuance of MPLX LP common units to the
public
Increase in MPC’s paid in capital for the issuance of MPLX LP common units and general partner
units to MPC
Net transfers (to) from noncontrolling interests
Tax impact
Change in MPC’s additional paid-in capital, net of tax
Agreements
2016
2015
$
(60)
$ 1,532
121
61
(118)
-
1,532
(404)
$
(57)
$
1,128
We have various long-term, fee-based transportation and storage services agreements with MPLX. Under these
agreements, MPLX provides transportation and storage services to us, and we commit to provide MPLX with
minimum quarterly throughput volumes on crude oil and refined products systems and minimum storage
volumes of crude oil, refined products and butane. We also have agreements with MPLX which establish fees for
operational and management services provided between us and MPLX and for executive management services
and certain general and administrative services provided by us to MPLX. These transactions are eliminated in
consolidation.
123
5. Acquisitions and Investments
Merger with MarkWest Energy Partners, L.P.
On December 4, 2015, MPLX completed the MarkWest Merger. Each common unit of MarkWest issued and
outstanding immediately prior to the effective time of the MarkWest Merger was converted into a right to receive
1.09 common units of MPLX representing limited partner interests in MPLX, plus a one-time cash payment of
$6.20 per unit. We will contribute approximately $1.28 billion of cash to MPLX to pay the aggregate cash
consideration to MarkWest unitholders, without receiving any new equity from MPLX in exchange. At closing,
we made a payment of $1.23 billion to MarkWest common unitholders and the remaining $50 million will be
paid in equal amounts, the first $25 million was paid in July 2016 and the second $25 million will be paid in July
2017, in connection with the conversion of the MPLX Class B Units to MPLX common units. Our financial
results and operating statistics reflect the results of MarkWest from the date of the MarkWest Merger.
The components of the fair value of consideration transferred are as follows:
(In millions)
Fair value of MPLX units issued
Cash payment to MarkWest unitholders
Payable to MarkWest Class B unitholders
Total fair value of consideration transferred
$
$
7,326
1,230
50
8,606
124
The following table summarizes the final purchase price allocation. Subsequent to December 31, 2015, additional
analysis was completed and adjustments were made to the preliminary purchase price allocation as noted in the
table below. The estimated fair value of assets acquired and liabilities and noncontrolling interests assumed at the
acquisition date, are as follows:
(In millions)
Cash and cash equivalents
Receivables
Inventories
Other current assets
Equity method investments
Property, plant and equipment, net
Other noncurrent assets(a)
Total assets acquired
Accounts payable
Payroll and benefits payable
Accrued taxes
Other current liabilities
Long-term debt
Deferred income taxes
Deferred credit and other liabilities
Noncontrolling interests
Total liabilities and noncontrolling interest assumed
Net assets acquired excluding goodwill
Goodwill
Net assets acquired
(a)
The adjustment relates to acquired intangible assets.
As originally
reported
Adjustments
As adjusted
$
$
12
164
33
44
2,457
8,474
473
11,657
322
13
21
44
4,567
374
151
13
5,505
6,152
2,454
8,606
$
$
-
-
(1)
-
143
43
65
250
6
-
-
-
-
3
-
-
9
241
(241)
$
-
$
12
164
32
44
2,600
8,517
538
11,907
328
13
21
44
4,567
377
151
13
5,514
6,393
2,213
8,606
Included in noncurrent assets at December 31, 2015 was a $468 million intangible asset related to customer
contracts and relationships. Amortization of intangibles with definite lives was calculated using the straight-line
method which was reflective of the benefit pattern in which the estimated economic benefit was expected to be
received over the estimated useful life of the intangible asset. The estimated useful life of the customer contracts
and relationships is 11 to 25 years.
Adjustments to the preliminary purchase price allocations as of December 31, 2015 stem mainly from additional
information obtained by management in the first quarter about facts and circumstances that existed at the
acquisition date including updates to forecasted employee benefit costs and capital expenditures, and completion
of certain valuations to determine the underlying fair value of certain acquired assets. The adjustment to
intangibles mainly relates to a misstatement in the preliminary purchase price allocation as of December 31,
2015. The correction of the error resulted in a $68 million reduction to the carrying value of goodwill and
offsetting increases of $64 million in intangibles and $2 million in both equity method investments and property,
plant and equipment. Management concluded that the correction of the error is immaterial to the consolidated
financial statements for all periods presented.
The increases to fair value of equity method investments, property plant and equipment, and other noncurrent
assets noted above would not have resulted in a material effect to depreciation and amortization or income from
equity method investments in the consolidated statements of income for the year ended December 31, 2015, had
the fair value adjustments been recorded as of December 4, 2015.
125
The net fair value of the assets acquired and liabilities assumed in connection with the MarkWest Merger was
less than the fair value of the total consideration resulting in the recognition of $2.21 billion of goodwill in three
reporting units within our Midstream segment, substantially all of which is not deductible for tax purposes.
Goodwill represents the complimentary aspects of the highly diverse asset base of MarkWest and MPLX that
will provide significant additional opportunities across the hydrocarbon value chain.
As further discussed in Note 16, we recorded a goodwill impairment charge based on the implied fair value of
goodwill as of the interim impairment analysis in the first quarter of 2016. During the second quarter of 2016, we
finalized the analysis of the purchase price allocation. The completion of the purchase price allocation resulted in
a refinement of the impairment expense recorded, as more fully discussed in Note 16.
We recognized $36 million of transaction costs related to the MarkWest Merger. These costs were expensed and
$30 million is included in selling, general and administrative expenses and $6 million is in net interest and other
financial income (costs).
The amounts of revenue and income from operations associated with the MarkWest Merger included in our
consolidated statements of income for 2015 are as follows:
(In millions)
Sales and other operating revenues (including consumer excise taxes)
Income from operations
Acquisition of Hess’ Retail Operations and Related Assets
2015
$
120
32
On September 30, 2014, we acquired from Hess Corporation (“Hess”) all of Hess’ retail locations, transport
operations and shipper history on various pipelines, including approximately 40 mbpd on Colonial Pipeline, for
$2.82 billion. We refer to these assets as “Hess’ Retail Operations and Related Assets.” The transaction was
funded with a combination of debt and available cash. The transaction provided for an adjustment for working
capital, which was finalized with Hess during the first quarter of 2015, resulting in a $3 million reduction to our
total consideration.
The purchase price allocation resulted in the recognition of $629 million in goodwill by our Speedway segment.
The goodwill primarily relates to the expected benefits of a significantly expanded retail platform that should
enable growth in new markets, as well as the potential for higher merchandise sales by utilizing Speedway’s
marketing approach at the acquired locations. The goodwill is deductible for tax purposes.
We recognized $14 million of acquisition-related costs associated with Hess’ Retail Operations and Related
Assets acquisition. These costs were expensed and were included in selling, general and administrative expenses.
The amounts of revenue and income from operations associated with Hess’ Retail Operations and Related Assets
included in our consolidated statements of income for 2014 are as follows:
(In millions)
Sales and other operating revenues (including consumer excise taxes)
Income from operations
2014
$
2,403
113
126
Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information presents consolidated results assuming the MarkWest
Merger occurred on January 1, 2014 and the Hess’ Retail Operations and Related Assets acquisition occurred on
January 1, 2013.
(In millions, except per share data)
Sales and other operating revenues (including consumer excise taxes)
Net income attributable to MPC
Net income attributable to MPC per share – basic
Net income attributable to MPC per share – diluted
2015
2014
$
73,760
$
2,825
5.25
5.21
$
$
108,605
2,522
4.42
4.39
The unaudited pro forma financial information includes adjustments to align accounting policies, increased
depreciation expense to reflect the fair value of property, plant and equipment, increased amortization expense
related to identifiable intangible assets, adjustments to amortize the difference between the fair value and the
principal amount of the MarkWest debt assumed by MPLX, adjustments to reflect the change in our limited
partner interest in MPLX resulting from the MarkWest Merger, additional interest expense related to financing
the acquisition of Hess’ Retail Operations and Related Assets, as well as the related income tax effects. The
unaudited pro forma financial information does not give effect to potential synergies that could result from the
transactions and is not necessarily indicative of the results of future operations.
Acquisition of Biodiesel Facility
On April 1, 2014, we purchased a facility in Cincinnati, Ohio from Felda Iffco Sdn Bhd, Malaysia for
$40 million. The plant currently produces biodiesel, glycerin and other by-products. The production capacity of
the plant is approximately 60 million gallons per year.
Neither goodwill nor a gain from a bargain purchase was recognized in conjunction with the biodiesel facility
acquisition.
Assuming the acquisition of the biodiesel facility in 2014 had been made at the beginning of any period
presented, the consolidated pro forma results would not be materially different from reported results.
Formation of Travel Plaza Joint Venture
In the fourth quarter of 2016, Speedway and Pilot Flying J finalized the formation of a joint venture consisting of
123 travel plazas, primarily in the Southeast United States. The new entity, PFJ Southeast LLC (“PFJ
Southeast”), consisted of 41 existing locations contributed by Speedway and 82 locations contributed by Pilot
Flying J, all of which carry either the Pilot or Flying J brand and are operated by Pilot Flying J. We did not
recognize a gain on the $272 million non-cash contribution of stores to the joint venture since the contribution
was that of in-substance real estate. Our non-cash contribution consisted of $203 million of property, plant and
equipment, $61 million of goodwill and $8 million of inventory.
Marine Investments
We currently have indirect ownership interests in two ocean vessel joint ventures with Crowley Maritime
Corporation (“Crowley”), which were established to own and operate Jones Act vessels in petroleum product
service. We have invested a total of $189 million in these two ventures as described further below.
In September 2015, we acquired a 50 percent ownership interest in a joint venture, Crowley Ocean Partners, with
Crowley. The joint venture owns and operates four new Jones Act product tankers, three of which are leased to
MPC. Two of the vessels were delivered in 2015 and the remaining two were delivered in 2016. We contributed
a total of $141 million for the four vessels.
127
In May 2016, MPC and Crowley formed a new ocean vessel joint venture, Crowley Coastal Partners LLC
(“Crowley Coastal Partners”), in which MPC has a 50 percent ownership interest. MPC and Crowley each
contributed their 50 percent ownership in Crowley Ocean Partners, discussed above, into Crowley Coastal
Partners. In addition, we contributed $48 million in cash and Crowley contributed its 100 percent ownership
interest in Crowley Blue Water Partners LLC (“Crowley Blue Water Partners”) to Crowley Coastal Partners.
Crowley Blue Water Partners is an entity that owns and operates three 750 Series ATB vessels that are leased to
MPC. We account for our 50 percent interest in Crowley Coastal Partners as part of our Midstream segment
using the equity method of accounting.
See Note 6 for information on Crowley Coastal Partners as a VIE and Note 25 for information on our conditional
guarantee of the indebtedness of Crowley Ocean Partners and Crowley Blue Water Partners.
Investments in Pipeline Companies
Bakken Pipeline system
On February 15, 2017, MPLX closed on the previously announced transaction to acquire a partial, indirect equity
interest in the Dakota Access Pipeline (“DAPL”) and Energy Transfer Crude Oil Company Pipeline (“ETCOP”)
projects, collectively referred to as the Bakken Pipeline system, through a joint venture with Enbridge Energy
Partners L.P. (“Enbridge Energy Partners”). MPLX contributed $500 million of the $2 billion purchase price paid
by the joint venture to acquire a 36.75 percent indirect equity interest in the Bakken Pipeline system from Energy
Transfer Partners, L.P. (“ETP”) and Sunoco Logistics Partners, L.P. (“SXL”). MPLX holds, through a subsidiary,
a 25 percent interest in the joint venture, which equates to an approximate 9.2 percent indirect equity interest in
the Bakken Pipeline system. The Bakken Pipeline system is currently expected to deliver in excess of 470 mbpd
of crude oil from the Bakken/Three Forks production area in North Dakota to the Midwest through Patoka,
Illinois and ultimately to the Gulf Coast. Furthermore, MPC expects to become a committed shipper on the
Bakken Pipeline system under terms of an on-going open season.
In connection with closing the transaction with ETP and SXL, Enbridge Energy Partners canceled MPC’s
transportation services agreement with respect to the Sandpiper pipeline project and released MPC from paying
any termination fee per that agreement.
Explorer Pipeline Company
In March 2014, we acquired from Chevron Raven Ridge Pipe Line Company an additional seven percent interest
in Explorer Pipeline Company (“Explorer”) for $77 million, bringing our ownership interest to 25 percent. As a
result of this increase in our ownership, we now account for our investment in Explorer using the equity method
of accounting rather than the cost method. The cumulative impact of the change was applied as an adjustment to
2014 retained earnings.
Southern Access Extension pipeline project
In July 2014, we exercised our option to acquire a 35 percent ownership interest in Enbridge Inc.’s Southern
Access Extension (“SAX”) pipeline through our in investment in Illinois Extension Pipeline Company, LLC
(“Illinois Extension Pipeline”). This option resulted from our agreement to be the anchor shipper on the SAX
pipeline and our commitment to the Sandpiper pipeline project as discussed below. We have contributed
$299 million to Illinois Extension Pipeline since project inception.
We account for our ownership interest in Illinois Extension Pipeline as an equity method investment. During the
construction of the pipeline, our ownership interest in Illinois Extension Pipeline was considered a VIE. Upon
completion and start up of the pipeline in December of 2015, a reassessment determined that our investment is no
longer considered a VIE. Our investment in the pipeline and our share of its results are included in our
Midstream segment.
128
Sandpiper pipeline project
In November 2013, we agreed to serve as an anchor shipper for the Sandpiper pipeline project and fund
37.5 percent of the construction costs of the project, which was to become part of Enbridge Energy Partners’
North Dakota System. In exchange for these commitments, we were to earn an approximate 27 percent equity
interest in Enbridge Energy Partners’ North Dakota System upon the Sandpiper pipeline being placed into
service. We made contributions of $14 million to North Dakota Pipeline Company LLC (“North Dakota
Pipeline”) during 2016 and have contributed $301 million since project inception to fund our share of the
construction costs for the project.
On September 1, 2016, Enbridge Energy Partners announced that its affiliate, North Dakota Pipeline, would
withdraw certain pending regulatory applications for its Sandpiper pipeline project and that the project would be
deferred indefinitely. These decisions were considered to indicate an impairment of the costs capitalized to date
on the project. See Note 17 for information regarding the charge recognized in the third quarter of 2016.
6. Variable Interest Entities
In addition to MPLX, as described in Note 4, the following entities are also VIEs.
Crowley Coastal Partners
In May 2016, Crowley Coastal Partners was formed to own an interest in both Crowley Ocean Partners and
Crowley Blue Water Partners. We have determined that Crowley Coastal Partners is a VIE based on the terms of
the existing financing arrangements for Crowley Blue Water Partners and Crowley Ocean Partners and the
associated debt guarantees by MPC and Crowley. Our maximum exposure to loss at December 31, 2016 was
$489 million, which includes our equity method investment in Crowley Coastal Partners and the debt guarantees
provided to each of the lenders to Crowley Blue Water Partners and Crowley Ocean Partners. We are not the
primary beneficiary of this VIE because we do not have the power to control the activities that significantly
influence the economic outcomes of the entity and therefore, do not consolidate the entity.
MarkWest Utica EMG
On January 1, 2012, MarkWest Utica Operating Company, LLC (“Utica Operating”), a wholly-owned and
consolidated subsidiary of MarkWest, and EMG Utica, LLC (“EMG Utica”) (together the “Members”), executed
to develop
agreements to form a joint venture, MarkWest Utica EMG LLC (“MarkWest Utica EMG”),
significant natural gas gathering, processing and NGL fractionation, transportation and marketing infrastructure
in eastern Ohio.
As of December 31, 2016, MarkWest has a 56 percent legal ownership interest in MarkWest Utica EMG.
MarkWest Utica EMG’s inability to fund its planned activities without subordinated financial support qualify it
as a VIE. Utica Operating is not deemed to be the primary beneficiary due to EMG Utica’s voting rights on
significant matters. We account for our ownership interest in MarkWest Utica EMG as an equity method
investment. MPLX receives engineering and construction and administrative management fee revenue and
reimbursement for other direct personnel costs for operating MarkWest Utica EMG. Our maximum exposure to
loss as a result of our involvement with MarkWest Utica EMG includes our equity investment, any additional
capital contribution commitments and any operating expenses incurred by the subsidiary operator in excess of
compensation received for the performance of the operating services. Our equity investment in MarkWest Utica
EMG at December 31, 2016 was $2.22 billion.
Ohio Gathering
Ohio Gathering Company, L.L.C. (“Ohio Gathering”) is a subsidiary of MarkWest Utica EMG and is engaged in
providing natural gas gathering services in the Utica Shale in eastern Ohio. Ohio Gathering is a joint venture
129
between MarkWest Utica EMG and Summit Midstream Partners, LLC. As of December 31, 2016, we had a
34 percent indirect ownership interest in Ohio Gathering. As this entity is a subsidiary of MarkWest Utica EMG,
which is accounted for as an equity method investment, MPLX reports its portion of Ohio Gathering’s net assets
as a component of its investment in MarkWest Utica EMG. MPLX receives engineering and construction and
administrative management fee revenue and reimbursement for other direct personnel costs for operating Ohio
Gathering.
7. Related Party Transactions
Our related parties included:
• Centennial Pipeline LLC (“Centennial”), in which we have a 50 percent noncontrolling interest.
Centennial owns a refined products pipeline and storage facility.
• Crowley Blue Water Partners, in which we have a 50 percent indirect noncontrolling interest. Crowley
Blue Water Partners owns and operates three Jones Act ATB vessels.
• Crowley Ocean Partners, in which we have a 50 percent indirect noncontrolling interest. Crowley
Ocean Partners owns and operates Jones Act product tankers.
• Explorer, in which we have a 25 percent interest. Explorer owns and operates a refined products
pipeline.
•
Illinois Extension Pipeline, in which we have a 35 percent noncontrolling interest. Illinois Extension
Pipeline owns and operates a crude oil pipeline.
• LOCAP LLC (“LOCAP”), in which we have a 59 percent noncontrolling interest. LOCAP owns and
operates a crude oil pipeline.
• LOOP LLC (“LOOP”), in which we have a 51 percent noncontrolling interest. LOOP owns and
operates the only U.S. deepwater oil port.
• MarkWest Utica EMG, in which we have a 56 percent noncontrolling interest. MarkWest Utica EMG
is engaged in significant natural gas processing and NGL fractionation, transportation and marketing in
the state of Ohio.
• Ohio Condensate Company L.L.C. (“Ohio Condensate”), in which we have a 60 percent noncontrolling
interest. Ohio Condensate is engaged in wellhead condensate gathering, stabilization, terminalling,
transportation and storage within certain defined areas of Ohio.
• Ohio Gathering, in which we have a 34 percent indirect noncontrolling interest. Ohio Gathering is a
subsidiary of MarkWest Utica EMG providing natural gas gathering service in the Utica Shale region
of eastern Ohio.
•
PFJ Southeast, in which we have a 29 percent noncontrolling interest. PFJ Southeast owns travel plazas
primarily in the Southeast United States.
• The Andersons Albion Ethanol LLC (“TAAE”), in which we have a 45 percent noncontrolling interest,
The Andersons Clymers Ethanol LLC (“TACE”), in which we have a 61 percent noncontrolling
interest and The Andersons Marathon Ethanol LLC (“TAME”), in which we have a 67 percent direct
and indirect noncontrolling interest. These companies each own and operate an ethanol production
facility.
• Other equity method investees.
130
We believe that transactions with related parties were conducted on terms comparable to those with unaffiliated
parties.
Sales to related parties, which are included in “Sales and other operating revenues (including consumer excise
taxes)” on the accompanying consolidated statements of income, were as follows:
(In millions)
PFJ Southeast
Other equity method investees
Total
2016
2015
2014
$
$
56
6
62
$
$
-
6
6
$
$
-
7
7
Other income from related parties, which is included in “Other income” on the accompanying consolidated
statements of income, were as follows:
(In millions)
MarkWest Utica EMG
Ohio Condensate
Ohio Gathering
Other equity method investees
Total
2016
2015
2014
$
$
16
4
15
6
41
$
$
-
-
2
2
4
$
$
-
-
-
1
1
Other income from related parties consists primarily of fees received for operating transportation assets for our
related parties.
Purchases from related parties were as follows:
(In millions)
Crowley Blue Water Partners
Crowley Ocean Partners
Explorer
Illinois Extension Pipeline
LOCAP
LOOP
TAAE
TACE
TAME
Other equity method investees
Total
2016
2015
2014
$
$
37
52
14
110
23
59
41
59
93
21
$
-
6
20
4
23
52
52
54
87
10
$
509
$
308
$
-
-
39
-
21
88
79
121
141
16
505
Related party purchases from Crowley Blue Water Partners and Crowley Ocean Partners consist of leasing
marine equipment primarily used to transport refined products. Related party purchases from Explorer consist
primarily of refined product transportation costs. Related party purchases from Illinois Extension Pipeline,
LOCAP, LOOP and other equity method investees consist primarily of crude oil transportation costs. Related
party purchases from TAAE, TACE and TAME consist of ethanol purchases.
131
Receivables from related parties, which are included in “Receivables, less allowance for doubtful accounts” on
the accompanying consolidated balance sheets, were as follows:
(In millions)
Centennial
MarkWest Utica EMG
Ohio Condensate
Ohio Gathering
PFJ Southeast
Other equity method investees
Total
December 31,
2016
2015
$
$
-
2
-
2
40
1
45
$
1
1
3
5
-
3
$
13
The long-term receivable from related parties, which is included in “Other noncurrent assets” on the
accompanying consolidated balance sheet, was $1 million at December 31, 2016 and $1 million at December 31,
2015.
Payables to related parties, which are included in “Accounts payable” on the accompanying consolidated balance
sheets, were as follows:
(In millions)
Explorer
Illinois Extension Pipeline
LOCAP
LOOP
MarkWest Utica EMG
Ohio Condensate
TAAE
TACE
TAME
Other equity method investees
Total
$
December 31,
2016
2015
$
-
9
2
6
24
1
2
4
4
1
1
4
2
5
19
4
1
2
3
1
$
53
$
42
8.
Income per Common Share
We compute basic earnings per share by dividing net income attributable to MPC by the weighted average
number of shares of common stock outstanding. The average number of shares of common stock and per share
amounts have been retroactively restated to reflect the two-for-one stock split completed in June 2015. Diluted
income per share assumes exercise of certain stock based compensation awards, provided the effect is not anti-
dilutive.
132
MPC grants certain incentive compensation awards to employees and non-employee directors that are considered
to be participating securities. Due to the presence of participating securities, we have calculated our earnings per
share using the two-class method.
(In millions, except per share data)
2016
2015
2014
Basic earnings per share:
Allocation of earnings:
Net income attributable to MPC
Income allocated to participating securities
$
1,174
$
2,852
$
2,524
1
4
4
Income available to common stockholders – basic
$
1,173
$
2,848
$
2,520
Weighted average common shares outstanding
Basic earnings per share
Diluted earnings per share:
Allocation of earnings:
528
538
570
$
2.22
$
5.29
$
4.42
Net income attributable to MPC
Income allocated to participating securities
$
1,174
$
2,852
$
2,524
1
4
4
Income available to common stockholders – diluted
$
1,173
$
2,848
$
2,520
Weighted average common shares outstanding
Effect of dilutive securities
Weighted average common shares, including dilutive effect
528
2
530
538
4
542
570
4
574
Diluted earnings per share
$
2.21
$
5.26
$
4.39
The following table summarizes the shares that were anti-dilutive, and therefore, were excluded from the diluted
share calculation.
(In millions)
2016
2015
2014
Shares issued under stock-based compensation plans
3
1
1
9. Equity
As of December 31, 2016, we have $2.56 billion of remaining share repurchase authorizations from our board of
the repurchases, which could include open market
directors. We may utilize various methods to effect
repurchases, negotiated block transactions, accelerated share repurchases or open market solicitations for shares,
some of which may be affected through Rule 10b5-1 plans. The timing and amount of future repurchases, if any,
will depend upon several factors, including market and business conditions, and such repurchases may be
discontinued at any time.
Total share repurchases were as follows for the respective periods:
(In millions, except per share data)
Number of shares repurchased
Cash paid for shares repurchased
Effective average cost per delivered share
2016
2015
2014
4
197
41.84
$
$
19
965
49
$
2,131
50.31
$ 44.31
$
$
133
10. Segment Information
In the first quarter of 2016, we revised our segment reporting in connection with the contribution of our inland
marine business to MPLX. The operating results for our inland marine business and our investment in Crowley
Ocean Partners are now reported in our Midstream segment. Previously they were reported as part of our
Refining & Marketing segment. Comparable prior period information has been recast to reflect our revised
segment presentation.
We have three reportable segments: Refining & Marketing; Speedway; and Midstream. Each of these segments is
organized and managed based upon the nature of the products and services it offers.
• Refining & Marketing – refines crude oil and other feedstocks at our refineries in the Gulf Coast and
Midwest regions of the United States, purchases ethanol and refined products for resale and distributes
refined products through various means, including terminals and trucks that we own or operate. We sell
refined products to wholesale marketing customers domestically and internationally, to buyers on the
spot market, to our Speedway segment and to independent entrepreneurs who operate Marathon® retail
outlets.
•
Speedway – sells transportation fuels and convenience merchandise in retail markets in the Midwest,
East Coast and Southeast regions of the United States.
• Midstream – includes the operations of MPLX and certain other related operations. The Midstream
segment gathers, processes and transports natural gas; gathers, transports, fractionates, stores and
markets NGLs and transports and stores crude oil and refined products.
On December 4, 2015, MPLX completed a merger with MarkWest and its results are included in the Midstream
segment. On September 30, 2014, we acquired Hess’ Retail Operations and Related Assets, substantially all of
which is part of the Speedway segment. Segment information for periods prior to each acquisition does not
include amounts for these operations. See Note 5.
Segment
income represents income from operations attributable to the reportable segments. Corporate
administrative expenses and costs related to certain non-operating assets are not allocated to the reportable
segments. In addition, certain items that affect comparability (as determined by the chief operating decision
maker) are not allocated to the reportable segments.
(In millions)
Year Ended December 31, 2016
Revenues:
Customer
Intersegment(a)
Segment revenues
Segment income from operations(b)(c)
Income from equity method investments(d)
Depreciation and amortization(d)
Capital expenditures and investments(e)
Refining &
Marketing
Speedway
Midstream
Total
$
43,228
$
18,283
$
1,828
$
63,339
$
$
10,589
53,817
1,543
24
1,092
1,101
$
$
3
18,286
734
5
273
303
$
$
808
2,636
871
142
576
1,521
$
$
11,400
74,739
3,148
171
1,941
2,925
134
(In millions)
Year Ended December 31, 2015
Revenues:
Customer
Intersegment(a)
Segment revenues
Segment income from operations(b)(c)
Income from equity method investments
Depreciation and amortization(d)
Capital expenditures and investments(e)(f)
(In millions)
Year Ended December 31, 2014
Revenues:
Customer
Intersegment(a)
Segment revenues
Segment income from operations(b)
Income from equity method investments
Depreciation and amortization(d)
Capital expenditures and investments(e)(g)
Refining &
Marketing
Speedway
Midstream
Total
$
52,174
$
19,690
$
$
$
12,024
64,198
4,086
26
1,052
1,045
Refining &
Marketing
$
$
$
$
3
19,693
673
-
254
501
187
777
964
380
62
144
14,545
$
72,051
$
$
12,804
84,855
5,139
88
1,450
16,091
Speedway
Midstream
Total
$
80,821
$
16,927
$
$
10,912
91,733
3,538
96
1,020
1,043
$
$
5
16,932
544
-
152
2,981
$
$
$
71
753
824
342
57
102
604
$
97,819
11,670
$ 109,489
$
4,424
153
1,274
4,628
(a) Management believes intersegment transactions were conducted under terms comparable to those with unaffiliated parties.
(b)
(c)
Included in the Midstream segment for 2016, 2015 and 2014 are $11 million, $20 million and $19 million, respectively, of corporate
overhead expenses attributable to MPLX. The remaining corporate overhead expenses are not currently allocated to other segments, but
instead are reported in corporate and other unallocated items. Also included in the Midstream segment for 2015 are $36 million of
transaction costs related to the MarkWest Merger.
In 2016, the Refining & Marketing and Speedway segments include an inventory LCM benefit of $345 million and $25 million,
respectively. In 2015, the Refining & Marketing and Speedway segments include an inventory LCM charge of $345 million and
$25 million, respectively.
(d) Differences between segment totals and MPC totals represent amounts related to unallocated items and are included in “Items not
allocated to segments” in the reconciliation below.
(e) Capital expenditures include changes in capital accruals, acquisitions and investments in affiliates.
(f)
(g)
The Midstream segment includes $13.85 billion for the MarkWest Merger. See Note 5.
The Speedway and Refining & Marketing segments include $2.66 billion and $52 million, respectively, for the acquisition of Hess’
Retail Operations and Related Assets. See Note 5.
135
The following reconciles segment income from operations to income before income taxes as reported in the
consolidated statements of income:
(In millions)
Segment income from operations
Items not allocated to segments:
Corporate and other unallocated items(a)
Pension settlement expenses(b)
Impairments(c)
Net interest and other financial income (costs)
Income before income taxes
2016
2015
2014
$
3,148
$
5,139
$
4,424
(277)
(7)
(486)
(556)
(299)
(4)
(144)
(318)
(277)
(96)
-
(216)
$
1,822
$
4,374
$
3,835
(a) Corporate and other unallocated items consists primarily of MPC’s corporate administrative expenses and costs related to certain
non-operating assets, except for corporate overhead expenses attributable to MPLX, which are included in the Midstream segment.
Corporate overhead expenses are not allocated to the Refining & Marketing and Speedway segments.
(b)
(c)
See Note 22.
2016 includes impairments of goodwill and equity method investments. 2015 relates to the cancellation of the ROUX project at our
Garyville refinery. See Notes 15, 16 and 17.
The following reconciles segment capital expenditures and investments to total capital expenditures:
(In millions)
Segment capital expenditures and investments
Less investments in equity method investees(a)
Plus items not allocated to segments:
Corporate and Other
Capitalized interest
Total capital expenditures(b)
2016
2015
2014
$
2,925
$
16,091
$
4,628
431
2,788
413
81
63
155
37
83
27
$
2,638
$
13,495
$
4,325
(a)
2016 includes an adjustment of $143 million to the fair value of equity method investments acquired in connection with the MarkWest
Merger. 2015 includes $2.46 billion for the MarkWest Merger. See Note 5.
(b) Capital expenditures include changes in capital accruals. See Note 20 for a reconciliation of total capital expenditures to additions to
property, plant and equipment as reported in the consolidated statements of cash flows.
The following reconciles total segment customer revenues to sales and other operating revenues (including
consumer excise taxes) as reported in the consolidated statements of income:
(In millions)
Customer revenues
Corporate and other unallocated items
2016
2015
2014
$
63,339
$
72,051
$
97,819
-
-
(2)
Sales and other operating revenues (including consumer excise taxes)
$
63,339
$
72,051
$
97,817
136
Revenues by product line were:
(In millions)
Refined products
Merchandise
Crude oil and refinery feedstocks
Service, transportation and other
2016
2015
2014
$
54,511
$
63,744
$
90,702
5,297
2,038
1,493
5,188
2,718
401
3,817
2,917
381
Sales and other operating revenues (including consumer excise taxes)
$
63,339
$
72,051
$
97,817
No single customer accounted for more than 10 percent of annual revenues for the years ended December 31,
2016, 2015 and 2014.
We do not have significant operations in foreign countries. Therefore, revenues in foreign countries and long-
lived assets located in foreign countries, including property, plant and equipment and investments, are not
material to our operations.
Total assets by reportable segment were:
(In millions)
Refining & Marketing
Speedway
Midstream
Corporate and Other
Total consolidated assets
11. Other Items
December 31,
2016
2015
$
18,039
$
17,379
5,426
18,078
2,870
5,349
17,462
2,925
$
44,413
$
43,115
Net interest and other financial income (costs) was:
(In millions)
Interest income
Interest expense(a)
Interest capitalized
Loss on extinguishment of debt
Other financial costs(b)
2016
2015
2014
$
6
$
6
$
7
(602)
64
-
(24)
(325)
37
(5)
(31)
(229)
27
-
(21)
Net interest and other financial income (costs)
$
(556)
$
(318)
$
(216)
(a)
2016 and 2015 includes $44 million and $1 million, respectively, for the amortization of the discount related to the difference between
the fair value and the principal amount of the assumed MarkWest debt.
(b)
2015 includes $6 million of transaction costs related to the MarkWest Merger.
137
12.
Income Taxes
Income tax provisions (benefits) were:
(In millions)
Current Deferred
Total
Current
Deferred
Total
Current
Deferred
Total
2016
2015
2014
Federal
$ 189
$ 336
$ 525
$ 1,210
$ 134
$ 1,344
$ 1,382
$ (199)
$ 1,183
State and local
Foreign
Total
27
(1)
57
1
84
-
152
10
9
(9)
161
1
135
5
(37)
(6)
98
(1)
$ 215
$ 394
$ 609
$ 1,372
$ 134
$ 1,506
$ 1,522
$ (242)
$ 1,280
A reconciliation of the federal statutory income tax rate (35 percent) applied to income before income taxes to
the provision for income taxes follows:
Statutory rate applied to income before income taxes
State and local income taxes, net of federal income tax effects
Domestic manufacturing deduction
Noncontrolling interests
Biodiesel excise tax credit
Other
Provision for income taxes
Deferred tax assets and liabilities resulted from the following:
(In millions)
Deferred tax assets:
Employee benefits
Environmental
Net operating loss carryforwards
Other
Total deferred tax assets
Deferred tax liabilities:
Property, plant and equipment
Inventories
Investments in subsidiaries and affiliates
Other
Total deferred tax liabilities
Net deferred tax liabilities
138
2016
2015
2014
35 %
35 %
35 %
3
(1)
(1)
(1)
(2)
2
(2)
-
(1)
-
33 %
34 %
2
(2)
-
-
(2)
33 %
December 31,
2016
2015
$
578
$
631
34
23
58
693
2,591
707
1,145
94
4,537
44
73
73
821
2,512
579
909
89
4,089
$
3,844
$
3,268
Net deferred tax liabilities were classified in the consolidated balance sheets as follows:
(In millions)
Assets:
Other noncurrent assets
Liabilities:
Deferred income taxes
Net deferred tax liabilities
December 31,
2016
2015
$
17
$
17
3,861
3,285
$
3,844
$
3,268
Tax carryforwards – At December 31, 2016 and 2015, federal operating loss carryforwards were $18 million and
$66 million, respectively, which expire in 2022 through 2036. As of December 31, 2016 and 2015, state and local
operating loss carryforwards were $8 million and $10 million, respectively, which expire in 2017 through 2036.
The decrease in both the federal and state loss carryforwards was due to the utilization of loss carryforwards as a
part of the reorganization transactions which simplified the MPLX ownership structure as discussed in Note 4.
Valuation allowances – As of December 31, 2016 and 2015, $10 million and $5 million of valuation allowances
were recognized primarily due to the expected realizability of foreign tax credits and based on estimates of future
financial income and expected realizability of state and local tax operating losses.
MPC is continuously undergoing examination of its U.S. federal income tax returns by the Internal Revenue
Service. Such audits have been completed through the 2009 tax year. We believe adequate provision has been
made for federal income taxes and interest which may become payable for years not yet settled. Further, we are
routinely involved in U.S. state income tax audits. We believe all other audits will be resolved with the amounts
paid and/or provided for these liabilities. As of December 31, 2016, our income tax returns remain subject to
examination in the following major tax jurisdictions for the tax years indicated:
United States Federal
States
2010 - 2015
2008 - 2015
During the first quarter of 2016, MPC’s deferred tax liabilities increased $115 million and additional paid-in
capital decreased by the same amount for an out of period adjustment to update the preliminary tax effects
recorded in 2015 related to the MarkWest Merger. The impact of the out of period adjustment was not material to
the consolidated balance sheet as of December 31, 2015.
The following table summarizes the activity in unrecognized tax benefits:
(In millions)
January 1 balance
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements
December 31 balance
2016
2015
2014
$
$
12
6
(10)
(1)
7
$
12
$
-
-
-
$
12
$
13
7
(10)
2
12
If the unrecognized tax benefits as of December 31, 2016 were recognized, $2 million would affect our effective
income tax rate. There were $1 million of uncertain tax positions as of December 31, 2016 for which it is
reasonably possible that the amount of unrecognized tax benefits would significantly decrease during the next
twelve months.
139
Interest and penalties related to income taxes are recorded as part of the provision for income taxes. Such interest
and penalties were net expenses (benefits) of $(5) million, $3 million and less than $1 million in 2016, 2015 and
2014, respectively. As of December 31, 2016 and 2015, $13 million and $18 million of interest and penalties
were accrued related to income taxes.
13.
Inventories
(In millions)
Crude oil and refinery feedstocks
Refined products
Materials and supplies
Merchandise
Lower of cost or market reserve
Total
December 31,
2016
2015
$
2,208
$
2,180
2,810
485
153
-
2,804
438
173
(370)
$
5,656
$
5,225
The LIFO method accounted for 91 percent of total inventory value at both December 31, 2016 and 2015.
Inventories are carried at the lower of cost or market value. Costs of crude oil, refinery feedstocks and refined
products are aggregated on a consolidated basis for purposes of assessing if the LIFO cost basis of these
inventories may have to be written down to market values. As of December 31, 2015, costs of inventories
exceeded market value by $370 million resulting in a charge to cost of revenues to establish an LCM inventory
valuation reserve. During 2016, market prices for these inventories increased and the market value of these
inventories exceeded their cost basis resulting in a reversal of the LCM inventory reserve and a $370 million
benefit to cost of revenues. At December 31, 2016, current acquisition costs of inventories were estimated to
exceed the LIFO inventory value by $308 million.
There were no material liquidations of LIFO inventories in 2016. In the second quarter of 2016, we had
recognized the effects of an interim liquidation of our refined products inventories which we did not expect to
reinstate by year end resulting in a pre-tax charge of approximately $54 million to income. Due to the annual
build of refined products inventories, in the fourth quarter of 2016, we recognized the effects of annual builds in
our refined products and crude inventories which had the effect of reversing the second quarter charge. During
2015, we recorded LIFO liquidations caused by permanently decreased levels in crude oil and refined products
inventory levels. Cost of revenues increased and income from operations decreased by $78 million for the year
ended December 31, 2015 due to these LIFO liquidations. There were no liquidations of LIFO inventories in
2014.
140
14. Equity Method Investments
(In millions)
Centennial
Centrahoma Processing LLC
Crowley Coastal Partners
Crowley Ocean Partners(a)
Explorer
Illinois Extension Pipeline
LOCAP
LOOP
MarkWest Utica EMG
North Dakota Pipeline(b)
Ohio Condensate(b)
PFJ Southeast(c)
TAAE
TACE
TAEI
TAME(d)
Other MPLX investments
Other
Total
Ownership as
of
December 31,
2016
Carrying value at
December 31,
2016
2015
50%
40%
50%
50%
25%
35%
59%
51%
56%
38%
60%
29%
45%
61%
34%
50%
$
$
35
104
184
-
94
293
22
277
37
111
-
72
91
267
22
243
2,224
2,160
30
10
283
33
33
15
18
129
43
287
101
-
27
49
18
27
86
24
$
3,827
$
3,622
(a) Crowley Ocean Partners merged into Crowley Coastal Partners in 2016.
(b) During 2016, we recorded an impairment charge of $267 million related to our investment in North Dakota Pipeline and an impairment
charge of $89 million related to our investment in Ohio Condensate. See Note 17 for additional information.
(c)
(d)
This joint venture with Pilot Flying J was formed in 2016. See Note 5.
Excludes TAEI’s investment in TAME.
Summarized financial information for equity method investees is as follows:
(In millions)
Income statement data:
Revenues and other income
Income (loss) from operations
Net income (loss)
Balance sheet data – December 31:
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
2016
2015
2014
$
2,421
$
1,390
$
1,430
(116)
(250)
332
239
379
316
$
711
$
906
8,170
884
1,462
6,418
468
1,130
141
As of December 31, 2016, the carrying value of our equity method investments was $1.21 billion higher than the
underlying net assets of investees. This basis difference is being amortized or accreted into net income over the
remaining estimated useful lives of the underlying net assets, except for $553 million of excess related to
goodwill.
Centennial experienced a significant reduction in shipment volumes in the second half of 2011 that has continued
through 2016. At December 31, 2016, Centennial was not shipping product. As a result, we continued to evaluate
the carrying value of our equity investment in Centennial. We concluded that no impairment was required given
our assessment of its fair value based on market participant assumptions for various potential uses and future
cash flows of Centennial’s assets. If market conditions were to change and the owners of Centennial are unable to
find an alternative use for the assets, there could be a future impairment of our Centennial interest. As of
December 31, 2016, our equity investment in Centennial was $35 million and we had a $29 million guarantee
associated with 50 percent of Centennial’s outstanding debt. See Note 25 for additional information on the debt
guarantee.
Dividends and partnership distributions received from equity method investees (excluding distributions that
represented a return of capital previously contributed) were $291 million, $113 million and $170 million in 2016,
2015 and 2014.
15. Property, Plant and Equipment
(In millions)
Refining & Marketing
Speedway
Midstream
Corporate and Other
Total
Less accumulated depreciation
Property, plant and equipment, net
Estimated
Useful Lives
December 31,
2016
2015
2 - 30 years
$
19,447
$
18,396
4 - 25 years
3 - 42 years
4 - 40 years
5,078
12,664
817
38,006
12,241
5,067
11,379
762
35,604
10,440
$
25,765
$
25,164
includes gross assets acquired under capital
Property, plant and equipment
leases of $505 million and
$511 million at December 31, 2016 and 2015, respectively, with related amounts in accumulated depreciation of
$202 million and $176 million at December 31, 2016 and 2015. Property, plant and equipment includes
construction in progress of $2.02 billion and $2.26 billion at December 31, 2016 and 2015, respectively, which
primarily relates to capital projects at our refineries and midstream facilities.
In the third quarter of 2015, we decided to cancel the ROUX project at our Garyville, Louisiana refinery due to
the implications of current market conditions. The project was intended to increase margins by upgrading
residual fuel to ultra-low sulfur diesel and gas oil. As a result, we recorded a $144 million impairment charge to
write off the costs incurred through September 30, 2015 on the project. This impairment charge is included in
“Impairment expense” on the accompanying consolidated statements of income.
16. Goodwill and Intangibles
Goodwill
Goodwill is tested for impairment on an annual basis and when events or changes in circumstances indicate the
fair value of a reporting unit with goodwill has been reduced below the carrying value of the net assets of the
142
reporting unit. In 2016, we recorded an impairment of goodwill as outlined below based on an interim
impairment analysis. There was no impairment required based on our subsequent annual test of goodwill in 2016.
In 2015, no impairment was required based on our annual test.
During the first quarter of 2016, MPLX, our consolidated subsidiary, determined that an interim impairment
analysis of the goodwill recorded in connection with the MarkWest Merger was necessary based on consideration
of a number of first quarter events and circumstances,
including i) continued deterioration of near-term
commodity prices as well as longer term pricing trends, ii) recent guidance on reductions to forecasted capital
spending, the slowing of drilling activity and the resulting reduced production growth forecasts released or
communicated by MPLX’s producer customers and iii) increases in the cost of capital. The combination of these
factors was considered to be a triggering event requiring an interim impairment test. Based on the first step of the
interim goodwill impairment analysis, the fair value for three of the reporting units to which goodwill was
assigned in connection with the MarkWest Merger was less than their respective carrying value. In step two of
the impairment analysis, the implied fair values of the goodwill were compared to the carrying values within
those reporting units. Based on this assessment, it was determined that goodwill was impaired in two of the
reporting units. Accordingly, MPLX recorded an impairment charge of approximately $129 million in the first
quarter of 2016. In the second quarter of 2016, MPLX completed its purchase price allocation, which resulted in
an additional $1 million of impairment expense that would have been recorded in the first quarter of 2016 had the
purchase price allocation been completed as of that date. This adjustment to the impairment expense was the
result of completing an evaluation of the deferred tax liabilities associated with the MarkWest Merger and their
impact on the resulting goodwill that was recognized.
The fair value of the reporting units for the interim goodwill impairment analysis was determined based on
applying the discounted cash flow method, which is an income approach, and the guideline public company
method, which is a market approach. The discounted cash flow fair value estimate was based on known or
knowable information at the interim measurement date. The significant assumptions that were used to develop
the estimates of the fair values under the discounted cash flow method include management’s best estimates of
the expected future results and discount rates, which ranged from 10.5 percent to 11.5 percent. Fair value
determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors.
As a result, there can be no assurance that the estimates and assumptions made for purposes of the interim
goodwill impairment test will prove to be an accurate prediction of the future.
The changes in the carrying amount of goodwill for 2016 and 2015 were as follows:
(In millions)
Balance at January 1, 2015
Acquisitions(a)
Disposition
Balance at December 31, 2015
Purchase price allocation adjustments(a)
Disposition(b)
Impairment
Balance at December 31, 2016
Refining &
Marketing
$
$ 539
-
-
539
-
-
-
$ 539
Speedway
Midstream
Total
$
$
$
854
-
(1)
853
-
(61)
-
792
$
$
$
173
2,454
-
2,627
(241)
-
(130)
2,256
$
$
$
1,566
2,454
(1)
4,019
(241)
(61)
(130)
3,587
(a)
See Note 5 for information on the acquisitions and purchase price allocation adjustments.
(b) Goodwill associated with our former Speedway travel plaza locations that are now part of the PFJ Southeast joint venture. The amount
was included in the initial basis for our equity method investment in the joint venture.
143
Intangible Assets
Our intangible assets as of December 31, 2016 and 2015 are as follows:
(In millions)
Balance at December 31, 2016
Refining &
Marketing
Speedway
Midstream
Total
Customer contracts and relationships
$
102
$
Royalty agreements
Favorable lease contract terms
Other(a)
Gross
Accumulated amortization
Net
Balance at December 31, 2015
Customer contracts and relationships
Royalty agreements
Favorable lease contract terms
Other(a)
Gross
Accumulated amortization
Net
128
1
27
$
258
(123)
$
135
$
91
122
1
28
$
242
(104)
$
138
1
-
57
75
$
533
$
636
-
-
-
128
58
102
$
133
$
533
$
924
$
$
(35)
98
1
-
70
75
$
146
(31)
$
115
(41)
(199)
$
492
$
725
$
468
$
560
-
-
-
122
71
103
$
468
$
856
(2)
(137)
$
466
$
719
(a)
The Refining & Marketing and Speedway segments include unamortized intangible assets of $3 million and $46 million, respectively,
which are primarily trademarks.
Amortization expense for 2016 and 2015 was $50 million and $29 million, respectively. Estimated future
amortization expense related to the intangible assets at December 31, 2016 is as follows:
(In millions)
2017
2018
2019
2020
2021
$
49
49
49
48
46
144
17. Fair Value Measurements
Fair Values – Recurring
The following tables present assets and liabilities accounted for at fair value on a recurring basis as of
December 31, 2016 and 2015 by fair value hierarchy level. We have elected to offset the fair value amounts
recognized for multiple derivative contracts executed with the same counterparty, including any related cash
collateral as shown below; however, fair value amounts by hierarchy level are presented on a gross basis in the
following tables.
(In millions)
Commodity derivative instruments, assets
Other assets
Total assets at fair value
Commodity derivative instruments,
liabilities
Embedded derivatives in commodity
contracts(c)
Contingent consideration, liability(d)
Total liabilities at fair value
$
712
$
December 31, 2016
Fair Value Hierarchy
Level 1
Level 2 Level 3
Netting and
Collateral(a)
Net Carrying
Value on Balance
Sheet(b)
Collateral
Pledged Not
Offset
$
$
$
$
$
$
688
2
690
712
-
-
-
-
-
-
-
-
-
$
$
$
-
-
-
$ (688)
N/A
$ (688)
6
$ (712)
54
130
-
N/A
$
190
$ (712)
$
$
$
$
-
2
2
6
54
130
190
$
126
-
126
-
-
-
-
$
$
$
(In millions)
December 31, 2015
Fair Value Hierarchy
Level 1 Level 2 Level 3
Netting
and
Collateral(a)
Net Carrying
Value on Balance
Sheet(b)
Collateral
Pledged Not
Offset
Commodity derivative instruments, assets
$ 104
Other assets
Total assets at fair value
Commodity derivative instruments, liabilities
Embedded derivatives in commodity
contracts(c)
Contingent consideration, liability(d)
2
$ 106
$
39
-
-
$
$
$
Total liabilities at fair value
$
39
$
2
-
2
-
-
-
-
$
$
$
7
-
7
-
32
317
$
349
$
$
$
$
$
(62)
N/A
(62)
(39)
-
N/A
(39)
$
$
$
$
51
2
53
-
32
317
349
$
$
$
$
-
-
-
-
-
-
-
(a) Represents the impact of netting assets, liabilities and cash collateral when a legal right of offset exists. As of December 31, 2016, cash
collateral of $24 million was netted with mark-to-market derivative liabilities. As of December 31, 2015, cash collateral of $23 million
was netted with mark-to-market derivative assets.
(b) We have no derivative contracts that are subject to master netting arrangements that are reflected gross on the balance sheet.
(c)
(d)
Includes $13 million and $5 million classified as current as of December 31, 2016 and 2015, respectively.
Includes $130 million and $196 million classified as current as of December 31, 2016 and 2015, respectively.
Commodity derivatives in Level 1 are exchange-traded contracts for crude oil and refined products measured at
fair value with a market approach using the close-of-day settlement prices for the market. Commodity derivatives
are covered under master netting agreements with an unconditional right to offset. Collateral deposits in futures
commission merchant accounts covered by master netting agreements related to Level 1 commodity derivatives
are classified as Level 1 in the fair value hierarchy.
145
Commodity derivatives in Level 2 include crude oil and natural gas swap contracts and are measured at fair value
with a market approach. The valuations are based on the appropriate commodity prices and contain no significant
unobservable inputs. LIBO Rates are an observable input for the measurement of these derivative contracts. The
measurements for commodity contracts contain observable inputs in the form of forward prices based on WTI
crude oil prices; and Columbia Appalachia, Henry Hub, PEPL and Houston Ship Channel natural gas prices.
Level 3 instruments include OTC NGL contracts and embedded derivatives in commodity contracts. The
embedded derivative liability relates to a natural gas purchase agreement embedded in a keep-whole processing
agreement. The fair value calculation for these Level 3 instruments at December 31, 2016 used significant
unobservable inputs including: (1) NGL prices interpolated and extrapolated due to inactive markets ranging
from $0.28 to $1.27 per gallon and (2) the probability of renewal of 50 percent for the first five-year term and
75 percent for the second five-year term of the gas purchase agreement and the related keep-whole processing
agreement. For these contracts, increases in forward NGL prices result in a decrease in the fair value of the
derivative assets and an increase in the fair value of the derivative liabilities. The forward prices for the
individual NGL products generally increase or decrease in a positive correlation with one another. Increases or
decreases in forward NGL prices result in an increase or decrease in the fair value of the embedded derivative.
An increase in the probability of renewal would result in an increase in the fair value of the related embedded
derivative liability.
The contingent consideration represents the fair value as of December 31, 2016 and 2015 of the remaining
amount we expect to pay to BP related to the earnout provision associated with our 2013 acquisition of BP’s
refinery in Texas City, Texas and related logistics and marketing assets. We refer to these assets as the
“Galveston Bay Refinery and Related Assets”. The fair value of the remaining contingent consideration was
estimated using an income approach and is therefore a Level 3 liability. The amount of cash to be paid under the
arrangement is based on both a market-based crack spread and refinery throughput volumes for the months
during which the earnout applies, as well as established thresholds that cap the annual and total payment. The
earnout payment cannot exceed $250 million per year for the last three years of the arrangement, with the total
cumulative payment capped at $700 million over the six-year period commencing in 2014. Any excess or
shortfall from the annual cap for a current year’s earnout calculation will not affect subsequent years’
calculations. The fair value calculation used significant unobservable inputs including: (1) an estimate of
forecasted monthly refinery throughput volumes; (2) an internal and external monthly crack spread forecast of
approximately $13 per barrel; and (3) a range of risk-adjusted discount rates from five percent to 10 percent. An
increase or decrease in forecasts for the crack spread or refinery throughput volumes may result
in a
corresponding increase or decrease in the fair value of the contingent consideration liability. Increases to the fair
value as a result of increasing forecasts for both of these unobservable inputs, however, are limited as the earnout
payment is subject to annual caps. An increase or decrease in the discount rate may result in a decrease or
increase to the fair value of the contingent consideration liability, respectively. The fair value of the contingent
consideration liability is reassessed each quarter, with changes in fair value recorded in cost of revenues.
Through December 31, 2016, we have paid BP approximately $569 million in total leaving $131 million
remaining under the total cap of $700 million.
146
The following is a reconciliation of the net beginning and ending balances recorded for net assets and liabilities
classified as Level 3 in the fair value hierarchy.
(In millions)
Beginning balance
Contingent consideration payment(a)
Net derivative positions assumed - MarkWest Merger
Unrealized and realized losses included in net income
Settlements of derivative instruments
Ending balance
2016
2015
2014
$
342
$
478
$
625
(200)
(189)
(180)
-
55
(7)
31
20
2
-
33
-
$
190
$
342
$
478
The amount of total (gains) losses for the period included in earnings
attributable to the change in unrealized (gains) losses relating to assets still
held at the end of period:
Derivative instruments
Contingent consideration agreement
Total
$
$
32
13
45
$
$
(7)
28
21
$
$
-
33
33
(a) On the consolidated statements of cash flows for 2016, 2015 and 2014, $164 million, $175 million and $172 million, respectively, of the
contingent earnout payment to BP was included as a financing activity with the remainder included as an operating activity.
See Note 18 for the income statement impacts of our derivative instruments.
Fair Values – Nonrecurring
The following table shows the values of assets, by major category, measured at fair value on a nonrecurring basis
in periods subsequent to their initial recognition.
Year Ended December 31,
2016
2015
2014
(In millions)
Fair Value
Impairment Fair Value
Impairment Fair Value
Impairment
Equity method investments
$
42
$
Goodwill
Property, plant and equipment, net
Other noncurrent assets
-
-
-
356
130
-
-
$
-
-
-
-
$
-
-
144
-
$
-
-
-
-
$
-
-
-
11
During the third quarter of 2016, Enbridge Energy Partners announced that its affiliate, North Dakota Pipeline,
would withdraw certain pending regulatory applications for the Sandpiper pipeline project and that the project
would be deferred indefinitely. These decisions were considered to indicate an impairment of the costs
capitalized to date on the project. As the operator of North Dakota Pipeline and the entity responsible for
maintaining its financial records, Enbridge completed a fixed asset impairment analysis as of August 31, 2016, in
accordance with ASC Topic 360. Based on the estimated liquidation value of the fixed assets, an impairment
charge was recorded by North Dakota Pipeline. Based on our 37.5 percent ownership of North Dakota Pipeline,
we recognized approximately $267 million of this charge in the third quarter of 2016 through “Income (loss)
from equity method investments” on the accompanying consolidated statements of income, which impaired
virtually all of our $301 million investment in the project. Also, in accordance with ASC Topic 323, we
completed an assessment to determine any additional equity method impairment charge to be recorded on our
consolidated financial statements resulting from an other-than-temporary impairment. The result of this analysis
indicated no additional charge was required to be recorded.
147
The fixed assets of North Dakota Pipeline related to the Sandpiper pipeline project consist primarily of project
management and engineering costs, pipe, valves, motors and other equipment, land and easements. The fair value
of fixed assets was estimated based on a market approach using the estimated price that would be received to sell
pipe, land and other related equipment in its current condition, considering the current market conditions for sale
of these assets and length of disposal period. The valuation considered a range of potential selling prices from
various alternatives that could be used to dispose of these assets. As such, the fair value of the North Dakota
Pipeline equity method investment and its underlying assets represents a Level 3 measurement. As a result, actual
results may differ from the estimates and assumptions made for purposes of this impairment analysis. North
Dakota Pipeline expects to dispose of these assets through orderly transactions.
During the second quarter of 2016, forecasts for Ohio Condensate, an equity method investment, were reduced in
line with updated forecasts for customer requirements. As the operator of that entity responsible for maintaining
its financial records, we completed a fixed asset impairment analysis as of June 30, 2016, in accordance with
ASC Topic 360, to determine the potential fixed asset impairment charge. The resulting fixed asset impairment
charge recorded within Ohio Condensate’s financial statements was $96 million. Based on our 60 percent
ownership of Ohio Condensate, approximately $58 million was recorded in the second quarter of 2016 in
“Income (loss) from equity method investments” on the accompanying consolidated statements of income.
Our investment in Ohio Condensate, which was established at fair value in connection with the MarkWest
Merger, exceeded its proportionate share of the underlying net assets. Therefore, in conjunction with the ASC
Topic 360 impairment analysis, we completed an equity method impairment analysis in accordance with ASC
Topic 323 to determine the potential additional equity method impairment charge to be recorded on our
consolidated financial statements resulting from an other-than-temporary impairment. As a result, an additional
impairment charge of approximately $31 million was recorded in the second quarter of 2016 in “Income (loss)
from equity method investments” on the accompanying consolidated statements of income, which eliminated the
basis differential established in connection with the MarkWest Merger.
The fair value of Ohio Condensate and its underlying assets was determined based upon applying the discounted
cash flow method, which is an income approach, and the guideline public company method, which is a market
approach. The discounted cash flow fair value estimate is based on known or knowable information at the interim
measurement date. The significant assumptions that were used to develop the estimate of the fair value under the
discounted cash flow method include management’s best estimates of the expected future results using a
probability weighted average set of cash flow forecasts and a discount rate of 11.2 percent. Fair value
determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors.
As such, the fair value of the Ohio Condensate equity method investment and its underlying assets represents a
Level 3 measurement. As a result, actual results may differ from the estimates and assumptions made for
purposes of this impairment analysis.
See Note 16 for additional information on the goodwill impairment.
In the third quarter of 2015, we decided to cancel the ROUX project at our Garyville refinery. The work
completed on the project through September 30, 2015 had no alternate use or net salvage value; therefore, we
fully impaired the $144 million of cost capitalized for the project through that date. The fair value of our
investment in the project was determined using an income approach and is classified as Level 3.
Based on the financial and operational status of a company in which we have an interest, we fully impaired our
$11 million investment in that company in 2014. Our investment in this company was accounted for using the
cost method and was included in our Refining & Marketing segment. The impairment charge is included in
“Other income” on the accompanying consolidated statements of income. The fair value of our investment in this
cost company was measured using an income approach. This measurement is classified as Level 3.
148
Fair Values – Reported
The following table summarizes financial instruments on the basis of their nature, characteristics and risk at
December 31, 2016 and 2015, excluding the derivative financial instruments and contingent consideration
reported above.
(In millions)
Financial assets:
Investments
Other
Total financial assets
Financial liabilities:
Long-term debt(a)
December 31,
2016
2015
Fair Value
Carrying
Value
Fair Value
Carrying
Value
$
$
25
21
46
$
$
2
21
23
$
$
33
35
68
$
$
2
33
35
$
10,892
$
10,297
$
11,366
$
11,628
Deferred credits and other liabilities
121
109
136
135
Total financial liabilities
$
11,013
$
10,406
$
11,502
$
11,763
(a)
Excludes capital leases and debt issuance costs, however, includes amount classified as debt due within one year.
Our current assets and liabilities include financial instruments, the most significant of which are trade accounts
receivable and payables. We believe the carrying values of our current assets and liabilities approximate fair
value. Our fair value assessment incorporates a variety of considerations, including (1) the short-term duration of
the instruments, (2) our investment-grade credit rating and (3) our historical incurrence of and expected future
insignificance of bad debt expense, which includes an evaluation of counterparty credit risk.
Fair values of our financial assets included in investments and other financial assets and of our financial
liabilities included in deferred credits and other liabilities are measured primarily using an income approach and
most inputs are internally generated, which results in a Level 3 classification. Estimated future cash flows are
discounted using a rate deemed appropriate to obtain the fair value. Other financial assets primarily consist of
environmental remediation receivables. Deferred credits and other liabilities primarily consist of a liability
resulting from a financing arrangement for the construction of the steam methane reformer (“SMR”) at the
Javelina gas processing and fractionation complex in Corpus Christi, Texas,
insurance liabilities and
environmental remediation liabilities.
Fair value of fixed-rate long-term debt is measured using a market approach, based upon the average of quotes
for our debt from major financial institutions and a third-party valuation service. Because these quotes cannot be
independently verified to the market, they are considered Level 3 inputs. Fair value of variable-rate long-term
debt approximates the carrying value.
18. Derivatives
For further information regarding the fair value measurement of derivative instruments, including any effect of
master netting agreements or collateral, see Note 17. See Note 2 for a discussion of the types of derivatives we
use and the reasons for them. We do not designate any of our commodity derivative instruments as hedges for
accounting purposes. Our interest rate derivative instruments that were terminated in 2012 had been designated
as fair value accounting hedges.
149
The following table presents the gross fair values of derivative instruments, excluding cash collateral, and where
they appear on the consolidated balance sheets as of December 31, 2016 and 2015:
(In millions)
Balance Sheet Location
Commodity derivatives
Other current assets
Other current liabilities(a)
Deferred credits and other liabilities(a)
(In millions)
Balance Sheet Location
Commodity derivatives
Other current assets
Other current liabilities(a)
Deferred credits and other liabilities(a)
(a)
Includes embedded derivatives.
December 31, 2015
Asset
Liability
$
113
$
-
-
39
5
27
December 31, 2016
Asset
Liability
$
688
$
712
-
-
13
47
Derivatives not Designated as Accounting Hedges
Derivatives that are not designated as accounting hedges may include commodity derivatives used to hedge price
risk on (1) inventories, (2) fixed price sales of refined products, (3) the acquisition of foreign-sourced crude oil,
(4) the acquisition of ethanol for blending with refined products, (5) sale of NGLs, (6) the purchase of natural gas
and (7) purchase of electricity.
The table below summarizes open commodity derivative contracts for crude oil and refined products as of
December 31, 2016.
Crude Oil(a)
Exchange-traded
Exchange-traded
OTC
(a)
98.7 percent of the exchange-traded contracts expire in the first quarter of 2017.
Natural Gas
OTC
Refined Products(a)
Exchange-traded
Exchange-traded
OTC
(a)
100 percent of the exchange-traded contracts expire in the first quarter of 2017.
150
Position
Total Barrels
(In thousands)
Long
Short
Short
53,028
(52,373)
(37)
Position
MMbtu
Long
297,017
Position
Total Gallons
(In thousands)
Long
Short
Short
196,434
(221,970)
(64,212)
The following table summarizes the effect of all commodity derivative instruments in our consolidated
statements of income:
(In millions)
Income Statement Location
Sales and other operating revenues
Cost of revenues
Total
19. Debt
Gain (Loss)
2016
2015
2014
$
$
(13)
(167)
(180)
$
$
19
294
313
$
$
37
456
493
Our outstanding borrowings at December 31, 2016 and 2015 consisted of the following:
(In millions)
Marathon Petroleum Corporation:
Commercial paper
364-day bank revolving credit facility due July 2017
Trade receivables securitization facility due July 2019
Bank revolving credit facility due 2020
Term loan agreement due 2019
Senior notes, 2.700% due December 2018
Senior notes, 3.400% due December 2020
Senior notes, 5.125% due March 2021
Senior notes, 3.625%, due September 2024
Senior notes, 6.500%, due March 2041
Senior notes, 4.750%, due September 2044
Senior notes, 5.850% due December 2045
Senior notes, 5.000%, due September 2054
MPLX LP:
MPLX term loan facility due 2019
MPLX bank revolving credit facility due 2020
MPLX senior notes, 5.500%, due February 2023
MPLX senior notes, 4.500%, due July 2023
MPLX senior notes, 4.875%, due December 2024
MPLX senior notes, 4.000%, due February 2025
MPLX senior notes, 4.875%, due June 2025
MarkWest senior notes, 4.500% – 5.500%, due 2023 – 2025
Capital lease obligations due 2016-2028
Total
Unamortized debt issuance costs
Unamortized discount(a)
Amounts due within one year
Total long-term debt due after one year
December 31,
2016
2015
$
-
-
-
-
200
600
650
1,000
750
1,250
800
250
400
250
-
710
989
1,149
500
1,189
63
319
$
-
-
-
-
700
600
650
1,000
750
1,250
800
250
400
250
877
710
989
1,149
500
1,189
63
348
11,069
12,475
(44)
(453)
(28)
(51)
(499)
(29)
$
10,544
$
11,896
(a)
Includes $420 million and $464 million discount as of December 31, 2016 and December 31, 2015, respectively, related to the difference
at the time of the acquisition between the fair value and the principal amount of the assumed MarkWest debt.
151
The following table shows five years of scheduled debt payments.
(In millions)
2017
2018
2019
2020
2021
$
28
630
477
683
1,031
Commercial Paper
On February 26, 2016, we established a commercial paper program that allows us to have a maximum of
$2 billion in commercial paper outstanding, with maturities up to 397 days from the date of issuance. We do not
intend to have outstanding commercial paper borrowings in excess of available capacity under our bank
revolving credit facilities. During 2016, we borrowed and repaid $1.26 billion under the commercial paper
program. At December 31, 2016, we had no amounts outstanding under the commercial paper program.
MPC Bank Revolving Credit Facilities
On July 20, 2016, we entered into a credit agreement with a syndicate of lenders to replace our existing MPC
bank revolving credit facility due in 2017. The new agreement provides for a four-year $2.5 billion bank
revolving credit facility (our “four-year revolving credit facility”) maturing on July 20, 2020. Additionally, we
entered into a 364-day $1 billion bank revolving credit facility (our “364-day revolving credit facility” and
together with our four-year revolving credit facility, our “revolving credit facilities”) maturing on July 19, 2017.
Our four-year revolving credit facility includes letter of credit issuing capacity of up to $2.0 billion and swingline
loan capacity of up to $100 million. We may increase our borrowing capacity under our four-year revolving
credit facility by up to an additional $500 million, subject to certain conditions including the consent of the
lenders whose commitments would be increased. In addition, the maturity date of the four-year revolving credit
facility may be extended for up to two additional one-year periods subject to the approval of lenders holding a
majority of the commitments then outstanding, provided that the commitments of any non-consenting lenders
will terminate on the then-effective maturity date.
Borrowings under our revolving credit facilities bear interest, at our election, at either the Adjusted LIBO Rate
(as defined in our revolving credit facilities) plus a margin or the Alternate Base Rate (as defined in our
revolving credit facilities), plus a margin. We are charged various fees and expenses under our revolving credit
facilities, including administrative agent fees, commitment fees on the unused portion of our borrowing capacity
and fees related to issued and outstanding letters of credit. The applicable margin to the benchmark interest rates
and the margin to the benchmark commitment fees payable under our revolving credit facilities fluctuate from
time-to-time based on our credit ratings.
Our revolving credit facilities contain certain representations and warranties, affirmative and restrictive
covenants and events of default that we consider to be usual and customary for arrangements of this type,
including a financial covenant
to Total
Capitalization (each as defined in our revolving credit facility) of no greater than 0.65 to 1.00 as of the last day of
each fiscal quarter. Other covenants, among other things, restrict our ability to incur debt, create liens on our
assets or enter into transactions with affiliates. As of December 31, 2016, we were in compliance with the
covenants contained in the revolving credit facilities.
that requires us to maintain a ratio of Consolidated Net Debt
There were no borrowings or letters of credit outstanding at December 31, 2016.
152
Trade Receivables Securitization Facility
On July 20, 2016, we amended our trade receivables securitization facility (“trade receivables facility”) to,
among other things, reduce the capacity from $1 billion to $750 million and to extend the maturity date to
July 19, 2019. The reduction in capacity reflects the lower refined product price environment.
The trade receivables facility consists of one of our wholly-owned subsidiaries, Marathon Petroleum Company
LP (“MPC LP”), selling or contributing on an on-going basis all of its trade receivables (including trade
receivables acquired from Marathon Petroleum Trading Canada LLC, a wholly-owned subsidiary of MPC LP),
together with all related security and interests in the proceeds thereof, without recourse, to another wholly-
owned, bankruptcy-remote special purpose subsidiary, MPC Trade Receivables Company LLC (“TRC”), in
exchange for a combination of cash, equity and/or a subordinated note issued by TRC to MPC LP. TRC, in turn,
has the ability to finance its purchase of the receivables from MPC LP by selling undivided ownership interests
in qualifying trade receivables, together with all related security and interests in the proceeds thereof, without
recourse, to the purchasing group in exchange for cash proceeds. The trade receivables facility also provides for
the issuance of letters of credit up to $750 million, provided that the aggregate credit exposure of the purchasing
group, including outstanding letters of credit, may not exceed the lesser of $750 million or the balance of our
eligible trade receivables at any one time.
To the extent that TRC retains an ownership interest in the receivables it has purchased or received from MPC
LP, such interest will be included in our consolidated financial statements solely as a result of the consolidation
of the financial statements of TRC with those of MPC. The receivables sold or contributed to TRC are available
first and foremost to satisfy claims of the creditors of TRC and are not available to satisfy the claims of creditors
of MPC. TRC has granted a security interest in all of its assets to the purchasing group to secure its obligations
under the Receivables Purchase Agreement.
Proceeds from the sale of undivided percentage ownership interests in qualifying receivables under the trade
receivables facility will be reflected as debt on our consolidated balance sheet. We will remain responsible for
servicing the receivables sold to the purchasing group. TRC pays floating-rate interest charges and usage fees on
if any, and certain other fees related to the
amounts outstanding under the trade receivables facility,
administration of the facility and letters of credit that are issued and outstanding under the trade receivables
facility.
The Receivables Purchase Agreement and Second Amended and Restated Receivables Sale Agreement include
representations and covenants that we consider usual and customary for arrangements of this type. Trade
receivables are subject to customary criteria, limits and reserves before being deemed to qualify for sale by TRC
pursuant to the trade receivables facility. In addition, further purchases of qualified trade receivables under the
trade receivables facility are subject to termination, and TRC may be subject to default fees, upon the occurrence
of certain amortization events that are included in the Receivables Purchase Agreement, all of which we consider
to be usual and customary for arrangements of this type. At December 31, 2016, we were in compliance with the
covenants contained in the Receivables Purchase Agreement and Second Amended and Restated Receivables
Sale Agreement.
During 2016, we borrowed $430 million under the trade receivables securitization facility at an average interest
rate of 1.4 percent and repaid all of these borrowings. There were no borrowings or letters of credit outstanding
under the trade receivables facility at December 31, 2016. As of December 31, 2016, eligible trade receivables
supported borrowings and letter of credit issuances of $684 million.
MPC Term Loan Agreement
On August 26, 2014, we entered into a $700 million five-year senior unsecured term loan credit agreement
(“term loan agreement”) with a syndicate of lenders to fund a portion of the purchase price for the acquisition of
153
Hess’ Retail Operations and Related Assets. The term loan was drawn in full on September 24, 2014. The term
loan agreement matures on September 24, 2019 and may be prepaid at any time without premium or penalty. We
pay certain customary fees under the term loan agreement, including an annual administrative fee to the
administrative agent.
On September 30, 2016, we prepaid $500 million under the MPC term loan agreement with available cash on
hand. As of December 31, 2016, $200 million in borrowings was outstanding under the term loan agreement.
Borrowings under the term loan agreement bear interest, at our election, at either the Adjusted LIBO Rate (as
defined in the term loan agreement) plus a margin or the Alternate Base Rate (as defined in the term loan
agreement) plus a margin. The applicable margin to the benchmark interest rates fluctuate from time-to-time
based on our credit ratings. The borrowings under this facility during 2016 were at an average interest rate of
1.6 percent.
The term loan agreement contains representation and warranties, affirmative and negative covenants and events
of default that are substantially similar to those contained in our revolving credit facilities, which we consider to
be usual and customary for an agreement of this type. Among other things, our term loan agreement requires us
to maintain, as of the last day of each fiscal quarter, a ratio of Consolidated Net Debt to Total Capitalization (as
defined in the term loan agreement) of no greater than 0.65 to 1.00. As of December 31, 2016, we were in
compliance with the covenants contained in the term loan agreement.
MPC Senior Notes
On December 14, 2015, we completed a public offering of $1.5 billion in aggregate principal amount of
unsecured senior notes (the “new MPC senior notes”), consisting of $600 million aggregate principal amount of
2.700% senior notes due 2018, $650 million aggregate principal amount of 3.400% senior notes due 2020 and
$250 million aggregate principal amount of 5.850% senior notes due 2045. The net proceeds from the offering of
the new MPC senior notes were $1.49 billion, after deducting underwriting discounts and offering expenses.
We used a majority of the net proceeds from this offering to extinguish the $750 million aggregate principal
amount of our 3.500% senior notes due 2016. During December 2015, we deposited $763 million with our senior
notes trustee in full satisfaction of our obligations for the 3.500% senior notes due 2016. Under the terms of the
senior notes indenture governing the 3.500% senior notes due 2016, our obligations related to these notes,
including the payment of principal and interest to the maturity date, was discharged in full upon making such
deposit. As a result, we recorded a loss on extinguishment of debt of $5 million. We used the remaining net
proceeds from the new MPC senior notes for general corporate purposes.
Interest on each series of the new MPC senior notes is payable semi-annually in arrears on June 15 and
December 15, commencing on June 15, 2016.
The new MPC senior notes are unsecured and unsubordinated obligations of MPC and rank equally with its other
existing and future unsecured and unsubordinated indebtedness. The new MPC senior notes are structurally
subordinate to the secured and unsecured debt of MPC’s subsidiaries, including all debt of MPLX and its
subsidiaries.
MPLX Credit Agreement
MPLX is party to a credit agreement, dated as of November 20, 2014, and amended as of October 27, 2015
(“MPLX credit agreement”), providing for a $2 billion bank revolving credit facility with a maturity date of
December 4, 2020 and an outstanding $250 million term loan facility with a maturity date of November 20, 2019.
The MPLX credit agreement includes letter of credit issuing capacity of up to $250 million and swingline loan
capacity of up to $100 million. The revolving borrowing capacity under the MPLX credit agreement may be
154
increased by up to an additional $500 million, subject to certain conditions, including the consent of the lenders
whose commitments would increase. In addition, the maturity date of the bank revolving credit facility may be
extended from time-to-time during its term to a date that is one year after the then-effective maturity date, subject
to the approval of lenders holding the majority of the loans and commitments then outstanding, provided that the
commitments of any non-consenting lenders will be terminated on the then-effective maturity date.
The maturity date for the term loan facility may be extended for up to two additional one-year periods subject to
the consent of the lenders holding a majority of the outstanding term loan borrowings, provided that the portion
of the term loan borrowings held by any non-consenting lenders will continue to be due and payable on the then-
effective maturity date.
Borrowings under the MPLX credit agreement bear interest, at our election, at the Adjusted LIBO Rate or the
Alternate Base Rate (as defined in the MPLX credit agreement) plus a specified margin. MPLX is charged
various fees and expenses in connection with the agreement, including administrative agent fees, commitment
fees on the unused portion of the borrowing capacity and fees with respect to issued and outstanding letters of
credit. The applicable margins to the benchmark interest rates and the commitment fees payable under the MPLX
credit agreement fluctuate from time-to-time based on MPLX’s credit ratings.
The MPLX credit agreement
includes certain representations and warranties, affirmative and restrictive
covenants and events of default that we consider to be usual and customary for an agreement of this type,
including a financial covenant that requires MPLX to maintain a ratio of Consolidated Total Debt as of the end of
each fiscal quarter to Consolidated EBITDA (both as defined in the MPLX credit agreement) for the prior four
fiscal quarters of no greater than 5.0 to 1.0 (or 5.5 to 1.0 for up to two fiscal quarters following certain
acquisitions). Consolidated EBITDA is subject to adjustments for certain acquisitions completed and capital
projects undertaken during the relevant period. Other covenants, among other things, restrict MPLX and certain
of its subsidiaries from incurring debt, creating liens on its assets and entering into transactions with affiliates. As
of December 31, 2016, MPLX was in compliance with the covenants contained in the MPLX credit agreement.
In connection with the closing of the MarkWest Merger, MarkWest’s existing credit facility was terminated and
the approximately $943 million outstanding under MarkWest’s bank revolving credit facility was repaid with
$850 million of borrowings under MPLX’s bank revolving credit facility and $93 million in cash. During 2016,
MPLX borrowed $434 million under the bank revolving credit facility, at an average interest rate of 1.9 percent,
per annum, and repaid $1.31 billion of these borrowings. At December 31, 2016, MPLX had no outstanding
borrowings and $3 million of letters of credit outstanding under the bank revolving credit facility, resulting in
total unused loan availability of $2 billion. At December 31, 2016, MPLX had $250 million in borrowings
outstanding under the term loan facility that bore interest at an average rate of 2.0 percent during 2016.
MPLX and MarkWest Senior Notes
In connection with the MarkWest Merger, MPLX assumed MarkWest’s outstanding debt, which included
$4.1 billion aggregate principal amount of senior notes outstanding. On December 22, 2015, approximately
$4.04 billion aggregate principal amount of MarkWest’s outstanding senior notes were exchanged for an
aggregate principal amount of approximately $4.04 billion of new unsecured senior notes issued by MPLX and
cash of $1 for each $1,000 of principal amount exchanged in an exchange offer and consent solicitation
undertaken by MPLX and MarkWest.
The new MPLX senior notes consist of approximately $710 million aggregate principal amount of 5.500% senior
notes due February 15, 2023, approximately $989 million aggregate principal amount of 4.500% senior notes due
July 15, 2023, approximately $1.15 billion aggregate principal amount of 4.875% senior notes due December 1,
2024 and approximately $1.19 billion aggregate principal amount of 4.875% senior notes due June 1, 2025.
Interest on each series of new MPLX senior notes is payable semi-annually in arrears on February 15th and
155
August 15th of each year with respect to the 5.500% 2023 senior notes, on January 15th and July 15th of each year
with respect to the 4.500% 2023 senior notes and on June 1st and December 1st of each year with respect to the
4.875% 2024 senior notes and the 4.875% 2025 senior notes.
After giving effect to the exchange offer and consent solicitation referred to above, as of December 31, 2016,
MarkWest had outstanding approximately $40 million aggregate principal amount of 5.500% senior notes due
February 15, 2023, approximately $11 million aggregate principal amount of 4.500% senior notes due July 15,
2023, approximately $1 million aggregate principal amount of 4.875% senior notes due December 1, 2024 and
approximately $11 million aggregate principal amount of 4.875% senior notes due June 1, 2025. Interest on each
series of the MarkWest senior notes is payable semi-annually in arrears on February 15th and August 15th of each
year with respect to the 5.500% 2023 senior notes, on January 15th and July 15th of each year with respect to the
4.500% 2023 senior notes and on June 1st and December 1st of each year with respect to the 4.875% 2024 senior
notes and the 4.875% 2025 senior notes.
The new MPLX notes are unsecured senior obligations of MPLX and rank equally in right of payment with all of
its other senior unsecured debt and are structurally subordinate to the secured and unsecured debt of MPLX’s
subsidiaries, including any debt of MarkWest that remains outstanding.
On February 12, 2015, MPLX completed a public offering of $500 million aggregate principal amount of four
percent unsecured senior notes due February 15, 2025. The net proceeds, which were approximately $495 million
after deducting underwriting discounts, were used to repay the amounts outstanding under the MPLX bank
revolving credit facility, as well as for general partnership purposes. Interest is payable semi-annually in arrears
on February 15th and August 15th of each year.
20. Supplemental Cash Flow Information
(In millions)
2016
2015
2014
Net cash provided by operating activities included:
Interest paid (net of amounts capitalized)
Net income taxes paid to taxing authorities
Non-cash investing and financing activities:
Capital lease obligations increase
Contribution of assets to joint venture(a)
Property, plant and equipment sold
Property, plant and equipment acquired
Acquisition:
Fair value of MPLX units issued(b)
Payable to MPLX Class B unitholders
$
$
478
140
$
272
$
166
1,605
1,362
-
$
272
-
-
-
-
$
1
-
5
5
7,326
50
-
-
4
4
-
-
(a)
(b)
Speedway’s contribution of travel plaza locations to new joint venture with Pilot Flying J.
See Note 5.
156
The consolidated statements of cash flows exclude changes to the consolidated balance sheets that did not affect
cash. The following is a reconciliation of additions to property, plant and equipment to total capital expenditures:
(In millions)
2016
2015
2014
Additions to property, plant and equipment per consolidated statements of cash
flows
Non-cash additions to property, plant and equipment
Asset retirement expenditures(a)
Increase (decrease) in capital accruals
Total capital expenditures before acquisitions
Acquisitions(b)
Total capital expenditures
$ 2,892
$
1,998
$ 1,480
-
6
(127)
2,771
(133)
5
1
94
2,098
11,397
4
2
95
1,581
2,744
$ 2,638
$ 13,495
$ 4,325
(a)
(b)
Included in All other, net – Operating activities on the consolidated statements of cash flows.
2016 includes adjustments to the fair values of property, plant and equipment, intangibles and goodwill acquired in connection with the
MarkWest Merger. The 2015 acquisitions include the MarkWest Merger. The 2014 acquisitions include the acquisition of Hess’ Retail
Operations and Related Assets. The acquisition numbers above include property, plant and equipment, intangibles and goodwill. See
Note 5.
21. Accumulated Other Comprehensive Loss
The following table shows the changes in accumulated other comprehensive loss by component. Amounts in
parentheses indicate debits.
(In millions)
Pension
Benefits
Other
Benefits
Gain on
Cash Flow
Hedge
Workers
Compensation
Total
Balance as of December 31, 2014
$
(217)
$
(104)
$
Other comprehensive income (loss)
before reclassifications
Amounts reclassified from accumulated
other comprehensive loss:
Amortization – prior service credit(a)
– actuarial loss(a)
– settlement loss(a)
Tax effect
Other comprehensive income (loss)
(44)
31
(46)
51
4
(3)
(38)
(4)
8
-
(1)
34
Balance as of December 31, 2015
$
(255)
$
(70)
$
4
-
-
-
-
-
-
4
$
4
$
(313)
(1)
(14)
-
-
-
-
(1)
3
$
(50)
59
4
(4)
(5)
$
(318)
157
(In millions)
Pension
Benefits
Other
Benefits
Gain on
Cash Flow
Hedge
Workers
Compensation
Total
Balance as of December 31, 2015
$
(255)
$
(70)
$
Other comprehensive income before
reclassifications
Amounts reclassified from accumulated
other comprehensive loss:
Amortization – prior service credit(a)
– actuarial loss(a)
– settlement loss(a)
Other(b)
Tax effect
Other comprehensive income (loss)
22
64
(46)
38
7
-
1
22
(3)
2
-
-
-
63
(7)
$
4
-
-
-
-
-
-
-
4
$
$
3
-
-
-
-
(1)
-
(1)
2
$
(318)
86
(49)
40
7
(1)
1
84
$
(234)
Balance as of December 31, 2016
$
(233)
$
(a)
(b)
These accumulated other comprehensive loss components are included in the computation of net periodic benefit cost. See Note 22.
This amount was reclassified out of accumulated other comprehensive loss and is included in selling, general and administrative on the
consolidated statements of income.
22. Defined Benefit Pension and Other Postretirement Plans
We have noncontributory defined benefit pension plans covering substantially all employees. Benefits under
these plans have been based primarily on age, years of service and final average pensionable earnings. The years
of service component of this formula was frozen as of December 31, 2009. Benefits for service beginning
January 1, 2010 are based on a cash balance formula with an annual percentage of eligible pay credited based
upon age and years of service. Eligible Speedway employees accrue benefits under a defined contribution plan
for service years beginning January 1, 2010.
We also have other postretirement benefits covering most employees. Health care benefits are provided through
comprehensive hospital, surgical and major medical benefit provisions subject to various cost-sharing features.
Retiree life insurance benefits are provided to a closed group of retirees. Other postretirement benefits are not
funded in advance.
Obligations and funded status – The accumulated benefit obligation for all defined benefit pension plans was
$1,914 million and $1,918 million as of December 31, 2016 and 2015.
The following summarizes our defined benefit pension plans that have accumulated benefit obligations in excess
of plan assets.
(In millions)
Projected benefit obligations
Accumulated benefit obligations
Fair value of plan assets
December 31,
2016
2015
$
2,024
$
1,997
1,914
1,659
1,918
1,570
158
The following summarizes the projected benefit obligations and funded status for our defined benefit pension and
other postretirement plans:
(In millions)
Change in benefit obligations:
Benefit obligations at January 1
Service cost
Interest cost
Actuarial (gain) loss
Benefits paid
Other(a)
Pension Benefits
2015
2016
Other Benefits
2016
2015
$
1,997
$
2,075
$
800
$
812
114
73
15
(175)
-
101
71
(63)
(187)
-
32
35
(101)
(26)
-
740
-
-
26
(26)
-
31
32
(63)
(24)
12
800
-
-
24
(24)
-
(427)
$ (740)
$ (800)
(19)
$
(32)
$
(29)
(408)
(427)
(708)
(771)
$ (740)
$ (800)
Benefit obligations at December 31
2,024
1,997
Change in plan assets:
Fair value of plan assets at January 1
1,570
1,744
Actual return on plan assets
Employer contributions
Benefits paid from plan assets
Fair value of plan assets at December 31
Funded status of plans at December 31
Amounts recognized in the consolidated balance sheets:
Current liabilities
Noncurrent liabilities
Accrued benefit cost
Pretax amounts recognized in accumulated other comprehensive
145
119
(175)
1,659
(365)
(18)
(347)
(365)
$
$
$
$
$
$
(33)
46
(187)
1,570
loss:(b)
Net actuarial loss
Prior service credit
$
645
$
723
$
(276)
(323)
17
(6)
$
120
(9)
(a)
Includes adjustments related to the MarkWest Merger in 2015.
(b) Amounts exclude those related to LOOP and Explorer, equity method investees with defined benefit pension and postretirement plans for
which net losses of $16 million and less than $1 million were recorded in accumulated other comprehensive loss in 2016, reflecting our
ownership share.
159
Components of net periodic benefit cost and other comprehensive loss – The following summarizes the net
periodic benefit costs and the amounts recognized as other comprehensive loss for our defined benefit pension
and other postretirement plans.
(In millions)
Components of net periodic benefit cost:
Service cost
Interest cost
Expected return on plan assets
Amortization – prior service credit
– actuarial loss
– settlement loss
Pension Benefits
2015
2014
2016
Other Benefits
2015
2016
2014
$ 114
$ 101
$
73
(98)
(46)
38
7
71
(98)
(46)
51
4
88
74
(107)
(46)
51
96
$
32
35
-
(3)
2
-
$
31
32
-
(4)
8
-
$
27
33
-
(4)
2
-
Net periodic benefit cost(a)
$
88
$
83
$
156
$
66
$
67
$
58
Other changes in plan assets and benefit obligations recognized
in other comprehensive loss (pretax):
Actuarial (gain) loss
Prior service cost(b)
Amortization of actuarial loss
Amortization of prior service cost
Other
$ (33)
$
69
$
188
$ (101)
$ (63)
$ 86
-
(45)
46
-
-
(55)
46
-
-
(147)
46
-
87
-
(2)
3
-
13
(8)
4
-
-
(2)
4
-
$ (100)
$ (54)
$
88
243
$ (34)
$
13
$ 146
Total recognized in other comprehensive loss
$ (32)
$
60
Total recognized in net periodic benefit cost and
other comprehensive loss
$
56
$ 143
$
$
(a) Net periodic benefit cost reflects a calculated market-related value of plan assets which recognizes changes in fair value over three years.
(b)
Includes adjustments related to the MarkWest Merger in 2015.
Lump sum payments to employees retiring in 2016, 2015 and 2014 exceeded the plan’s total service and interest
costs expected for those years. Settlement losses are required to be recorded when lump sum payments exceed
total service and interest costs. As a result, pension settlement expenses were recorded in 2016, 2015 and 2014
related to our cumulative lump sum payments made during those years.
The estimated net actuarial loss and prior service credit for our defined benefit pension plans that will be
amortized from accumulated other comprehensive loss into net periodic benefit cost in 2017 are $35 million and
$39 million, respectively. The estimated net actuarial loss and prior service credit for our other defined benefit
postretirement plans that will be amortized from accumulated other comprehensive loss into net periodic benefit
cost in 2017 is $2 million and $3 million, respectively.
160
Plan assumptions – The following summarizes the assumptions used to determine the benefit obligations at
December 31, and net periodic benefit cost for the defined benefit pension and other postretirement plans for
2016, 2015 and 2014.
Pension Benefits
2015
2014
2016
Other Benefits
2015
2014
2016
Weighted-average assumptions used to determine benefit obligation:
Discount rate
Rate of compensation increase
3.90% 4.00% 3.65% 4.25% 4.50% 4.15%
5.00% 3.70% 3.70% 5.00% 3.70% 3.70%
Weighted-average assumptions used to determine net periodic benefit
cost:
Discount rate
3.80% 3.70% 4.05% 4.50% 4.30% 4.95%
Expected long-term return on plan assets(a)
6.50% 6.75% 7.00% —% —% —%
Rate of compensation increase
5.00% 3.70% 3.70% 5.00% 3.70% 3.70%
(a)
Effective January 1, 2017, the expected long-term rate of return on plan assets is 6.50 percent due to a continuation of a change in our
primary plan investment strategy, which began January 1, 2014.
Expected long-term return on plan assets
The overall expected long-term return on plan assets assumption is determined based on an asset rate-of-return
modeling tool developed by a third-party investment group. The tool utilizes underlying assumptions based on
actual returns by asset category and inflation and takes into account our asset allocation to derive an expected
long-term rate of return on those assets. Capital market assumptions reflect the long-term capital market outlook.
The assumptions for equity and fixed income investments are developed using a building-block approach,
reflecting observable inflation information and interest rate information available in the fixed income markets.
Long-term assumptions for other asset categories are based on historical results, current market characteristics
and the professional judgment of our internal and external investment teams.
Assumed health care cost trend
The following summarizes the assumed health care cost trend rates.
Health care cost trend rate assumed for the following year:
Medical: Pre-65
Prescription drugs
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate):
Medical: Pre-65
Prescription drugs
Year that the rate reaches the ultimate trend rate:
Medical: Pre-65
Prescription drugs
December 31,
2015
2016
2014
7.00%
9.00%
4.50%
4.50%
7.50%
7.00%
5.00%
5.00%
8.00%
7.00%
5.00%
5.00%
2026
2026
2021
2021
2021
2021
Increases in the post-65 medical plan premium for the Marathon Petroleum Health Plan and the Marathon
Petroleum Retiree Health Plan are the lower of the trend rate or four percent.
161
Assumed health care cost trend rates have a significant effect on the amounts reported for defined benefit retiree
health care plans. A one percentage point change in assumed health care cost trend rates would have the
following effects:
(In millions)
Effect on total of service and interest cost components
Effect on other postretirement benefit obligations
Plan investment policies and strategies
1-Percentage-
Point Increase
1-Percentage-
Point Decrease
$
6
33
$
(5)
(29)
The investment policies for our pension plan assets reflect the funded status of the plans and expectations
regarding our future ability to make further contributions. Long-term investment goals are to: (1) manage the
assets in accordance with the legal requirements of all applicable laws; (2) diversify plan investments across asset
classes to achieve an optimal balance between risk and return and between income and growth of assets through
capital appreciation; and (3) source benefit payments primarily through existing plan assets and anticipated future
returns.
The investment goals are implemented to manage the plans’ funded status volatility and minimize future cash
contributions. The asset allocation strategy will change over time in response to changes primarily in funded
status, which is dictated by current and anticipated market conditions, the independent actions of our investment
committee, required cash flows to and from the plans and other factors deemed appropriate. Such changes in
asset allocation are intended to allocate additional assets to the fixed income asset class should the funded status
improve. The fixed income asset class shall be invested in such a manner that its interest rate sensitivity
correlates highly with that of the plans’ liabilities. Other asset classes are intended to provide additional return
with associated higher levels of risk. Investment performance and risk is measured and monitored on an ongoing
basis through quarterly investment meetings and periodic asset and liability studies. At December 31, 2016, the
primary plan’s targeted asset allocation was 51 percent equity, private equity, real estate, and timber securities
and 49 percent fixed income securities.
Fair value measurements
Plan assets are measured at fair value. The following provides a description of the valuation techniques employed
for each major plan asset category at December 31, 2016 and 2015.
Cash and cash equivalents – Cash and cash equivalents include a collective fund serving as the investment
vehicle for the cash reserves and cash held by third-party investment managers. The collective fund is valued at
net asset value (“NAV”) on a scheduled basis using a cost approach, and is considered a Level 2 asset. Cash and
cash equivalents held by third-party investment managers are valued using a cost approach and are considered
Level 2.
Equity – Equity investments includes common stock, mutual and pooled funds. Common stock investments are
valued using a market approach, which are priced daily in active markets and are considered Level 1. Mutual and
pooled equity funds are well diversified portfolios, representing a mix of strategies in domestic, international and
emerging market strategies. Mutual funds are publicly registered, valued at NAV on a daily basis using a market
approach and are considered Level 1 assets. Pooled funds are valued at NAV using a market approach and are
considered Level 2.
Fixed Income – Fixed income investments include corporate bonds, U.S. dollar treasury bonds and municipal
bonds. These securities are priced on observable inputs using a combination of market, income and cost
approaches. These securities are considered Level 2 assets. Fixed income also includes a well diversified bond
portfolio structured as a pooled fund. This fund is valued at NAV on a daily basis using a market approach and is
considered Level 2.
162
Private Equity – Private equity investments include interests in limited partnerships which are valued using
information provided by external managers for each individual investment held in the fund. These holdings are
considered Level 3.
Real Estate – Real estate investments consist of interests in limited partnerships. These holdings are either
appraised or valued using investment manager’s assessment of assets held. These holdings are considered
Level 3.
Other – Other investments include two limited liability companies (“LLCs”) with no public market. The LLCs
were formed to acquire timberland in the northwest U.S. These holdings are either appraised or valued using
investment manager’s assessment of assets held. These holdings are considered Level 3. Other investments
classified as Level 1 include publicly traded depository receipts.
The following tables present the fair values of our defined benefit pension plans’ assets, by level within the fair
value hierarchy, as of December 31, 2016 and 2015.
(In millions)
Cash and cash equivalents
Equity:
Common stocks
Mutual funds
Pooled funds
Fixed income:
Corporate
Government
Pooled funds
Private equity
Real estate
Other
Level 1
December 31, 2016
Level 3
Level 2
$
-
$
24
$
71
160
-
-
-
-
-
-
2
-
-
451
570
90
173
-
-
-
-
-
-
-
-
-
-
60
39
19
Total
$
24
71
160
451
570
90
173
60
39
21
Total investments, at fair value
$
233
$
1,308
$
118
$
1,659
(In millions)
Cash and cash equivalents
Equity:
Common stocks
Mutual funds
Pooled funds
Fixed income:
Corporate
Government
Pooled funds
Private equity
Real estate
Other
Level 1
December 31, 2015
Level 3
Level 2
Total
$
-
$
27
$
-
$
27
57
142
-
-
-
-
-
-
2
-
-
399
516
103
193
-
-
-
-
-
-
-
-
-
62
50
19
57
142
399
516
103
193
62
50
21
Total investments, at fair value
$
201
$
1,238
$
131
$
1,570
163
The following is a reconciliation of the beginning and ending balances recorded for plan assets classified as
Level 3 in the fair value hierarchy:
(In millions)
Beginning balance
Actual return on plan assets:
Realized
Unrealized
Purchases
Sales
Ending balance
(In millions)
Beginning balance
Actual return on plan assets:
Realized
Unrealized
Purchases
Sales
Ending balance
Cash Flows
2016
Private
Equity
Real
Estate
Other
Total
$
62
$
50
$
19
$ 131
8
2
2
5
(3)
1
(14)
(14)
-
-
-
-
13
(1)
3
(28)
$
60
$
39
$
19
$
118
2015
Private
Equity
Real
Estate
Other
Total
$
66
$
57
$
21
$ 144
12
(1)
5
(20)
6
(3)
5
(15)
-
(2)
-
-
18
(6)
10
(35)
$
62
$
50
$
19
$
131
Contributions to defined benefit plans – Our funding policy with respect to the funded pension plans is to
contribute amounts necessary to satisfy minimum pension funding requirements, including requirements of the
Pension Protection Act of 2006, plus such additional, discretionary, amounts from time to time as determined
appropriate by management. In 2016, we made pension contributions totaling $119 million. We have no required
funding for 2017, but may make voluntary contributions at our discretion. Cash contributions to be paid from our
general assets for the unfunded pension and postretirement plans are estimated to be approximately $14 million
and $32 million, respectively, in 2017.
Estimated future benefit payments – The following gross benefit payments, which reflect expected future service,
as appropriate, are expected to be paid in the years indicated.
(In millions)
2017
2018
2019
2020
2021
2022 through 2026
Pension Benefits Other Benefits
$
174
$
177
182
165
165
801
32
35
37
39
41
222
164
Contributions to defined contribution plans – We also contribute to several defined contribution plans for eligible
employees. Contributions to these plans totaled $113 million, $94 million and $86 million in 2016, 2015 and
2014, respectively.
Multiemployer Pension Plan
We contribute to one multiemployer defined benefit pension plan under the terms of a collective-bargaining
agreement that covers some of our union-represented employees. The risks of participating in this multiemployer
plan are different from single-employer plans in the following aspects:
• Assets contributed to the multiemployer plan by one employer may be used to provide benefits to
employees of other participating employers.
•
•
If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be
borne by the remaining participating employers.
If we choose to stop participating in the multiemployer plan, we may be required to pay that plan an
amount based on the underfunded status of the plan, referred to as a withdrawal liability.
Our participation in this plan for 2016, 2015 and 2014 is outlined in the table below. The “EIN” column provides
the Employee Identification Number for the plan. The most recent Pension Protection Act zone status available
in 2016 and 2015 is for the plan’s year ended December 31, 2015 and December 31, 2014, respectively. The zone
status is based on information that we received from the plan and is certified by the plan’s actuary. Among other
factors, plans in the red zone are generally less than 65 percent funded. The “FIP/RP Status Pending/
Implemented” column indicates a financial improvement plan or a rehabilitation plan has been implemented. The
last column lists the expiration date of the collective-bargaining agreement to which the plan is subject. There
have been no significant changes that affect the comparability of 2016, 2015 and 2014 contributions. Our portion
of the contributions does not make up more than five percent of total contributions to the plan.
Pension Fund
EIN
2016
2015
Implemented
2016
2015
2014
Imposed
Agreement
Pension Protection FIP/RP Status
Expiration Date of
Act Zone Status
Pending/ MPC Contributions (In millions) Surcharge Collective - Bargaining
Central States,
Southeast and
Southwest Areas
Pension Plan(a)
36-6044243
Red
Red
Implemented
$
4
$
4
$
4
No
January 31, 2019
(a)
This agreement has a minimum contribution requirement of $303 per week per employee for 2017. A total of 280 employees participated
in the plan as of December 31, 2016.
Multiemployer Health and Welfare Plan
We contribute to one multiemployer health and welfare plan that covers both active employees and retirees.
Through the health and welfare plan employees receive medical, dental, vision, prescription and disability
coverage. Our contributions to this plan totaled $6 million, $7 million and $6 million for 2016, 2015 and 2014,
respectively.
23. Stock-Based Compensation Plans
Description of the Plans
Effective April 26, 2012, our employees and non-employee directors became eligible to receive equity awards
under the Marathon Petroleum Corporation 2012 Incentive Compensation Plan (“MPC 2012 Plan”). The MPC
165
to grant
2012 Plan authorizes the Compensation Committee of our board of directors (“Committee”)
non-qualified or incentive stock options, stock appreciation rights, stock awards (including restricted stock and
restricted stock unit awards), cash awards and performance awards to our employees and non-employee
directors. Under the MPC 2012 Plan, no more than 50 million shares of our common stock may be delivered and
no more than 20 million shares of our common stock may be the subject of awards that are not stock options or
stock appreciation rights. In the sole discretion of the Committee, 20 million shares of our common stock may be
granted as incentive stock options. Shares issued as a result of awards granted under these plans are funded
through the issuance of new MPC common shares.
Prior to April 26, 2012, our employees and non-employee directors were eligible to receive equity awards under
the Marathon Petroleum Corporation 2011 Second Amended and Restated Incentive Compensation Plan (“MPC
2011 Plan”).
Stock-based awards under the Plans
We expense all share-based payments to employees and non-employee directors based on the grant date fair
value of the awards over the requisite service period, adjusted for estimated forfeitures.
Stock Options – We grant stock options to certain officer and non-officer employees. All of the stock options
granted in 2016 fell under the MPC 2012 Plan. Stock options awarded under the MPC 2011 Plan and the MPC
2012 Plan represent the right to purchase shares of our common stock at its fair market value, which is the
closing price of MPC’s common stock on the date of grant. Stock options have a maximum term of ten years
from the date they are granted, and vest over a requisite service period of three years. We use the Black Scholes
option-pricing model to estimate the fair value of stock options granted, which requires the input of subjective
assumptions.
Restricted Stock and Restricted Stock Units – We grant restricted stock and restricted stock units to employees
and non-employee directors. In general, restricted stock and restricted stock units granted to employees vest over
a requisite service period of three years. Restricted stock and restricted stock unit awards granted after 2011 to
officers are subject to an additional one year holding period after the three-year vesting period. Restricted stock
recipients who received grants in 2012 and after have the right to vote such stock; however, dividends are
accrued and will be paid upon vesting. Restricted stock units granted to non-employee directors are considered to
vest immediately at the time of the grant for accounting purposes, as they are non-forfeitable, but are not issued
until the director’s departure from the board of directors. Restricted stock unit recipients do not have the right to
vote such shares and receive dividend equivalents payable upon vesting. The non-vested shares are not
transferable and are held by our transfer agent. The fair values of restricted stock are equal to the market price of
our common stock on the grant date.
Performance Units – We grant performance unit awards to certain officer employees. Performance units are
dollar denominated. The target value of all performance units is $1.00, with actual payout up to $2.00 per unit
(up to 200 percent of target). Performance units issued under the MPC 2012 Plan have a 36-month requisite
service period. The payout value of these awards will be determined by the relative ranking of the total
shareholder return (“TSR”) of MPC common stock compared to the TSR of a select group of peer companies, as
well as the Standard & Poor’s 500 Energy Index fund over an average of four measurement periods. These
awards will be settled 25 percent in MPC common stock and 75 percent in cash. The number of shares actually
distributed will be determined by dividing 25 percent of the final payout by the closing price of MPC common
stock on the day the Committee certifies the final TSR rankings, or the next trading day if the certification is
made outside of normal trading hours. The performance units paying out in cash are accounted for as liability
awards and recorded at fair value with a mark-to-market adjustment made each quarter. The performance units
that settle in shares are accounted for as equity awards.
166
Total Stock-Based Compensation Expense
The following table reflects activity related to our stock-based compensation arrangements:
(In millions)
Stock-based compensation expense
Tax benefit recognized on stock-based compensation expense
Cash received by MPC upon exercise of stock option awards
Tax benefit received for tax deductions for stock awards exercised
Stock Option Awards
2016
2015
2014
$
45
17
10
4
$
42
16
33
26
$
40
15
26
19
The Black Scholes option-pricing model values used to value stock option awards granted were determined based
on the following weighted average assumptions:
Weighted average exercise price per share
Expected life in years
Expected volatility
Expected dividend yield
Risk-free interest rate
2016
2015
2014
$
35.27
$
50.85
$
42.51
6.2
38%
3.0%
1.4%
6.0
33%
2.0%
1.7%
5.8
36%
1.9%
1.8%
Weighted average grant date fair value of stock option awards granted
$
9.84
$
13.44
$
12.69
The expected life of stock options granted is based on historical data and represents the period of time that
options granted are expected to be held prior to exercise. The 2016 assumption for expected volatility of our
stock price reflects a weighting of 50 percent of our common stock implied volatility and 50 percent of our
common stock historical volatility. The risk-free interest rate for periods within the expected life of the option is
based on the U.S. Treasury yield curve in effect at the time of the grant.
The following is a summary of our common stock option activity in 2016:
Number of
of Shares
Weighted Average
Exercise Price
Weighted Average
Remaining
Contractual Terms
(in years)
Aggregate
Intrinsic Value
(in millions)
Outstanding at December 31, 2015
8,724,631
$
Granted
Exercised
Forfeited, canceled or expired
Outstanding at December 31, 2016
Vested and expected to vest at December 31,
2016
Exercisable at December 31, 2016
1,474,177
(637,761)
(29,607)
9,531,440
9,518,269
7,094,204
27.16
35.27
18.78
42.91
28.93
28.90
24.90
5.4
4.3
$
205
181
The intrinsic value of options exercised by MPC employees during 2016, 2015 and 2014 was $14 million,
$60 million and $48 million, respectively.
As of December 31, 2016, unrecognized compensation cost related to stock option awards was $8 million, which
is expected to be recognized over a weighted average period of 1.5 years.
167
Restricted Stock Awards
The following is a summary of restricted stock award activity of our common stock in 2016:
Shares of Restricted Stock (“RS”)
Restricted Stock Units (“RSU”)
Number of Shares
Weighted Average
Grant Date Fair
Value
Number of
Units
Weighted Average
Grant Date Fair
Value
Outstanding at December 31, 2015
1,074,543
$
Granted
RS’s Vested/RSU’s Issued
Forfeited
Outstanding at December 31, 2016
732,074
(477,339)
(78,935)
1,250,343
47.70
36.17
46.26
47.53
41.51
513,220
45,495
(197,598)
-
361,117
$
24.59
40.85
21.62
-
28.26
Of the 361,117 restricted stock units outstanding, 343,327 are vested and have a weighted average grant date fair
value of $27.25. These vested but unissued units are held by our non-employee directors and certain officers, are
non-forfeitable and are issuable upon the director’s departure from our board of directors or officers end of
employment with the company.
The following is a summary of the values related to restricted stock and restricted stock unit awards held by MPC
employees and non-employee directors:
Restricted Stock
Restricted Stock Units
Intrinsic Value of
Awards Vested
During the Period
(in millions)
Weighted Average
Grant Date Fair
Value of Awards
Granted During
the Period
Intrinsic Value
of Awards
Vested During
the Period
(in millions)
Weighted Average
Grant Date Fair
Value of Awards
Granted During
the Period
$
$
17
27
28
$
36.17
50.64
43.82
$
8
21
-
40.85
49.87
42.95
2016
2015
2014
As of December 31, 2016, unrecognized compensation cost related to restricted stock awards was $34 million,
which is expected to be recognized over a weighted average period of 1.5 years. There was no material
unrecognized compensation cost related to restricted stock unit awards.
Performance Unit Awards
The following table presents a summary of the 2016 activity for performance unit awards to be settled in shares:
Outstanding at December 31, 2015
Granted
Exercised
Canceled
Outstanding at December 31, 2016
168
Number of Units
Weighted
Average Grant
Date Fair Value
6,145,442
$
2,329,500
(1,904,792)
(314,972)
6,255,178
0.92
0.57
0.95
0.93
0.78
The number of shares that would be issued upon target vesting, using the closing price of our common stock on
December 31, 2016 would be 124,234 shares.
As of December 31, 2016, unrecognized compensation cost related to equity-classified performance unit awards
was $2 million, which is expected to be recognized over a weighted average period of 1.5 years.
Performance units paying out in units have a grant date fair value calculated using a Monte Carlo valuation
model, which requires the input of subjective assumptions. The following table provides a summary of these
assumptions:
Risk-free interest rate
Look-back period
Expected volatility
2016
2015
2014
0.96%
0.95%
0.63%
2.83 years
2.84 years
2.84 years
34.15%
30.38%
38.51%
Grant date fair value of performance units granted
$
0.57
$
0.95
$
0.85
The risk-free interest rate for the remaining performance period as of the grant date is based on the U.S. Treasury
yield curve in effect at the time of the grant. The look-back period reflects the remaining performance period at
the grant date. The assumption for the expected volatility of our stock price reflects the average MPC common
stock historical volatility.
MPLX Awards
Our wholly-owned subsidiary and the general partner of MPLX, MPLX GP LLC (“MPLX GP”), maintains a
unit-based compensation plan for officers, directors and employees (including any other individual who may be
considered an “employee” under a Registration Statement on Form S-8 or any successor form) of MPLX GP.
The MPLX 2012 Incentive Compensation Plan (“MPLX Plan”) permits various types of equity awards including
but not limited to grants of phantom units and performance units. Awards granted under the MPLX Plan will be
settled with MPLX units. Compensation expense for these awards were not material to our consolidated financial
statements for the years ended December 31, 2016, 2015 and 2014.
24. Leases
Lessee
We lease a wide variety of facilities and equipment under operating leases, including land and building space,
office equipment, storage facilities and transportation equipment. Most long-term leases include renewal options
and, in certain leases, purchase options. Future minimum commitments as of December 31, 2016, for capital
lease obligations and for operating lease obligations having initial or remaining non-cancellable lease terms in
excess of one year are as follows:
(In millions)
2017
2018
2019
2020
2021
Later years
Total minimum lease payments
Less imputed interest costs
Present value of net minimum lease payments
169
Capital
Lease
Obligations
Operating
Lease
Obligations
$
$
$
254
211
198
188
170
569
$
1,590
50
50
45
49
45
206
445
126
319
Operating lease rental expense was:
(In millions)
Rental expense
Lessor
2016
2015
2014
$
327
$
331
$
256
MPLX has certain natural gas gathering, transportation and processing agreements in which it is considered to be
the lessor under several implicit operating lease arrangements in accordance with US GAAP. MPLX’s primary
implicit lease operations relate to a natural gas gathering agreement in the Marcellus region for which it earns a
fixed-fee for providing gathering services to a single producer using a dedicated gathering system. As the
gathering system is expanded, the fixed-fee charged to the producer is adjusted to include the additional
gathering assets in the lease. The primary term of the natural gas gathering arrangement expires in 2023 and will
continue thereafter on a year to year basis until terminated by either party. Other significant implicit leases relate
to a natural gas processing agreement in the Marcellus region and a natural gas processing agreement in the
Southern Appalachia region for which MPLX earns minimum monthly fees for providing processing services to
a single producer using a dedicated processing plant. The primary term of these natural gas processing
agreements expire during 2023 and 2030.
Our revenue from implicit lease arrangements, excluding executory costs, totaled approximately $246 million,
$16 million and $0 million in 2016, 2015 and 2014, respectively. The implicit lease arrangements related to the
processing facilities contain contingent rental provisions whereby we receive additional fees if the producer
customer exceeds the monthly minimum processed volumes. During the year ended December 31, 2016, we
received $7 million in contingent lease payments and less than $1 million for the year ended December 31, 2015.
The following is a schedule of minimum future rentals on the non-cancellable operating leases as of
December 31, 2016:
(In millions)
2017
2018
2019
2020
2021
Later years
Total minimum lease payments
$
197
200
202
201
185
460
$
1,445
The following schedule summarizes our investment in assets held for operating lease by major classes as of
December 31, 2016:
(In millions)
Natural gas gathering and NGL transportation pipelines and facilities
Natural gas processing facilities
Construction in progress
Property, plant and equipment
Less accumulated depreciation
Total property, plant and equipment
170
$
$
650
844
219
1,713
84
1,629
25. Commitments and Contingencies
We are the subject of, or a party to, a number of pending or threatened legal actions, contingencies and
commitments involving a variety of matters, including laws and regulations relating to the environment. Some of
these matters are discussed below. For matters for which we have not recorded an accrued liability, we are unable
to estimate a range of possible loss because the issues involved have not been fully developed through pleadings
and discovery. However, the ultimate resolution of some of these contingencies could, individually or in the
aggregate, be material.
Environmental matters – We are subject to federal, state, local and foreign laws and regulations relating to the
environment. These laws generally provide for control of pollutants released into the environment and require
responsible parties to undertake remediation of hazardous waste disposal sites and certain other locations
including presently or formerly owned or operated retail marketing sites. Penalties may be imposed for
noncompliance.
At December 31, 2016 and 2015, accrued liabilities for remediation totaled $132 million and $163 million. It is
not presently possible to estimate the ultimate amount of all remediation costs that might be incurred or the
penalties if any that may be imposed. Receivables for recoverable costs from certain states, under programs to
assist companies in clean-up efforts related to underground storage tanks at presently or formerly owned or
operated retail marketing sites, were $58 million and $70 million at December 31, 2016 and 2015, respectively.
We are involved in a number of environmental enforcement matters arising in the ordinary course of business.
While the outcome and impact on us cannot be predicted with certainty, management believes the resolution of
these environmental matters will not,
individually or collectively, have a material adverse effect on our
consolidated results of operations, financial position or cash flows.
MarkWest Environmental Proceeding – In July 2015, representatives from the EPA and the United States
Department of Justice conducted a raid on a pipeline launcher/receiver site of MarkWest Liberty Midstream &
Resources, L.L.C., a wholly-owned subsidiary of MPLX (“MarkWest Liberty Midstream”), utilized for pipeline
maintenance operations in Washington County, Pennsylvania pursuant to a search warrant issued by a magistrate
of the United States District Court for the Western District of Pennsylvania. As part of this initiative, the U.S.
Attorney’s Office for the Western District of Pennsylvania, with the assistance of EPA’s Criminal Investigation
Division proceeded with an investigation of MarkWest’s launcher/receiver, pipeline and compressor station
operations. In response to the investigation, MarkWest initiated independent studies which demonstrated that
there was no risk to worker safety and no threat of public harm associated with MarkWest’s launcher/receiver
operations. These findings were supported by a subsequent inspection and review by the Occupational Safety and
Health Administration. After providing these studies, and other substantial documentation related to MarkWest’s
pipeline and compressor stations, and arranging site visits and conducting several meetings with the
government’s representatives, on September 13, 2016, the U.S. Attorney’s Office for the Western District of
Pennsylvania rendered a declination decision, dropping its criminal investigation and declining to pursue charges
in this matter.
MarkWest Liberty Midstream continues to discuss with the EPA and the State of Pennsylvania civil enforcement
allegations associated with permitting or other related regulatory obligations for its launcher/receiver and
compressor station facilities in the region. In connection with these discussions, MarkWest Liberty Midstream
received an initial proposal from the EPA to settle all civil claims associated with this matter for the combination
of a proposed cash penalty of approximately $2.4 million and proposed supplemental environmental projects
with an estimated cost of approximately $3.6 million. MarkWest Liberty Midstream will be submitting a
response asserting that this action involves novel issues surrounding primarily minor source emissions from
facilities that the agencies themselves considered de minimis were not the subject of regulation and consequently
that the settlement proposal is excessive. MarkWest will continue to negotiate with the EPA regarding the
amount and scope of the proposed settlement.
171
Other Lawsuits – In May 2015, the Kentucky attorney general filed a lawsuit against our wholly-owned
subsidiary, MPC LP, in the United States District Court for the Western District of Kentucky asserting claims
under federal and state antitrust statutes, the Kentucky Consumer Protection Act, and state common law. The
complaint, as amended in July 2015, alleges that MPC LP used deed restrictions, supply agreements with
customers and exchange agreements with competitors to unreasonably restrain trade in areas within Kentucky
and seeks declaratory relief, unspecified damages, civil penalties, restitution and disgorgement of profits. At this
early stage, the ultimate outcome of this litigation remains uncertain, and neither the likelihood of an unfavorable
outcome nor the ultimate liability, if any, can be determined, and we are unable to estimate a reasonably possible
loss (or range of loss) for this matter. We intend to vigorously defend ourselves in this matter.
In May 2007, the Kentucky attorney general filed a lawsuit against us and Marathon Oil in state court in Franklin
County, Kentucky for alleged violations of Kentucky’s emergency pricing and consumer protection laws
following Hurricanes Katrina and Rita in 2005. The lawsuit alleges that we overcharged customers by
$89 million during September and October 2005. The complaint seeks disgorgement of these sums, as well as
penalties, under Kentucky’s emergency pricing and consumer protection laws. We are vigorously defending this
litigation. We believe that this is the first lawsuit for damages and injunctive relief under the Kentucky
emergency pricing laws to progress this far and it contains many novel issues. In May 2011, the Kentucky
to include a request for immediate injunctive relief as well as
attorney general amended his complaint
unspecified damages and penalties related to our wholesale gasoline pricing in April and May 2011 under
statewide price controls that were activated by the Kentucky governor on April 26, 2011 and which have since
expired. The court denied the attorney general’s request for immediate injunctive relief, and the remainder of the
2011 claims likely will be resolved along with those dating from 2005. If the lawsuit is resolved unfavorably in
its entirety, it could materially impact our consolidated results of operations, financial position or cash flows.
However, management does not believe the ultimate resolution of this litigation will have a material adverse
effect.
We are also a party to a number of other lawsuits and other proceedings arising in the ordinary course of
business. While the ultimate outcome and impact to us cannot be predicted with certainty, we believe that the
resolution of these other lawsuits and proceedings will not have a material adverse effect on our consolidated
financial position, results of operations or cash flows.
Guarantees – We have provided certain guarantees, direct and indirect, of the indebtedness of other companies.
Under the terms of most of these guarantee arrangements, we would be required to perform should the
guaranteed party fail to fulfill its obligations under the specified arrangements. In addition to these financial
guarantees, we also have various performance guarantees related to specific agreements.
Guarantees related to indebtedness of equity method investees – We hold interests in an offshore oil port, LOOP,
and a crude oil pipeline system, LOCAP. Both LOOP and LOCAP have secured various project financings with
throughput and deficiency agreements. Under the agreements, we are required to advance funds if the investees
are unable to service their debt. Any such advances are considered prepayments of future transportation charges.
The duration of the agreements vary but tend to follow the terms of the underlying debt, which extend through
2037. Our maximum potential undiscounted payments under these agreements for the debt principal totaled
$172 million as of December 31, 2016.
We hold an interest in a refined products pipeline through our investment in Centennial, and have guaranteed our
portion of the payment of Centennial’s principal, interest and prepayment costs, if applicable, under a Master
Shelf Agreement, which is scheduled to expire in 2024. The guarantee arose in order for Centennial to obtain
adequate financing. Our maximum potential undiscounted payments under this agreement for debt principal
totaled $29 million as of December 31, 2016.
172
In connection with our 50 percent ownership in Crowley Ocean Partners, we have agreed to conditionally
guarantee our portion of the obligations of the joint venture and its subsidiaries under a senior secured term loan
agreement. The term loan agreement provides for loans of up to $325 million to finance the acquisition of four
product tankers. MPC’s liability under the guarantee for each vessel is conditioned upon the occurrence of
certain events, including if we cease to maintain an investment grade credit rating or the charter for the relevant
product tanker ceases to be in effect and is not replaced by a charter with an investment grade company on
certain defined commercial terms. As of December 31, 2016, our maximum potential undiscounted payments
under this agreement for debt principal totaled $163 million.
In connection with our 50 percent indirect interest in Crowley Blue Water Partners, we have agreed to provide a
conditional guarantee of up to 50 percent of its outstanding debt balance in the event there is no charter
agreement in place with an investment grade customer for the entity’s three vessels as well as other financial
support in certain circumstances. The maximum exposure under these arrangements is 50 percent of the amount
of the debt, which was $142 million as of December 31, 2016.
Marathon Oil indemnifications – In conjunction with the Spinoff, we have entered into arrangements with
Marathon Oil providing indemnities and guarantees with recorded values of $2 million as of December 31, 2016,
which consist of unrecognized tax benefits related to MPC, its consolidated subsidiaries and the RM&T Business
operations prior to the Spinoff which are not already reflected in the unrecognized tax benefits described in Note
12, and other contingent liabilities Marathon Oil may incur related to taxes. Furthermore, the separation and
distribution agreement and other agreements with Marathon Oil
the Spinoff provide for cross-
indemnities between Marathon Oil and us. In general, Marathon Oil is required to indemnify us for any liabilities
relating to Marathon Oil’s historical oil and gas exploration and production operations, oil sands mining
operations and integrated gas operations, and we are required to indemnify Marathon Oil for any liabilities
relating to Marathon Oil’s historical refining, marketing and transportation operations. The terms of these
indemnifications are indefinite and the amounts are not capped.
to effect
Other guarantees – We have entered into other guarantees with maximum potential undiscounted payments
totaling $82 million as of December 31, 2016, which consist primarily of a commitment to contribute cash to an
equity method investee for certain catastrophic events, up to $50 million per event, in lieu of procuring insurance
coverage and leases of assets containing general lease indemnities and guaranteed residual values.
General guarantees associated with dispositions – Over the years, we have sold various assets in the normal
course of our business. Certain of the related agreements contain performance and general guarantees, including
guarantees regarding inaccuracies in representations, warranties, covenants and agreements, and environmental
and general indemnifications that require us to perform upon the occurrence of a triggering event or condition.
These guarantees and indemnifications are part of the normal course of selling assets. We are typically not able
to calculate the maximum potential amount of future payments that could be made under such contractual
provisions because of the variability inherent in the guarantees and indemnities. Most often, the nature of the
guarantees and indemnities is such that there is no appropriate method for quantifying the exposure because the
underlying triggering event has little or no past experience upon which a reasonable prediction of the outcome
can be based.
Contractual commitments and contingencies – At December 31, 2016 and 2015, our contractual commitments
to acquire property, plant and equipment and advance funds to equity method investees totaled $899 million and
$1.6 billion. The contractual commitments at December 31, 2016 includes $131 million of contingent
consideration associated with the acquisition of the Galveston Bay Refinery and Related Assets. The contractual
commitments at December 31, 2015 included the $331 million contingent consideration associated with the
acquisition of the Galveston Bay Refinery and Related Assets, $630 million for contributions to North Dakota
Pipeline and $69 million for contributions to Crowley Ocean Partners. See Note 17 for additional information on
the contingent consideration.
173
Certain natural gas processing and gathering arrangements require us to construct natural gas processing plants,
natural gas gathering pipelines and NGL pipelines and contain certain fees and charges if specified construction
milestones are not achieved for reasons other than force majeure. In certain cases, certain producer customers
may have the right to cancel the processing arrangements if there are significant delays that are not due to force
majeure. As of December 31, 2016, management does not believe there are any indications that we will not be
able to meet the construction milestones, that force majeure does not apply, or that such fees and charges will
otherwise be triggered.
26. Subsequent Events
On February 6, 2017, MPLX announced that its wholly-owned subsidiary, MarkWest, and Antero Midstream
Partners L.P. (“Antero Midstream”) formed a strategic joint venture, Sherwood Midstream LLC, to support the
development of Antero Resources Corporation’s extensive Marcellus Shale acreage in the prolific rich-gas
corridor of West Virginia. In connection with this transaction, MarkWest contributed approximately $134 million
of assets currently under construction at the Sherwood Complex and Antero Midstream made an initial capital
contribution of approximately $154 million.
On February 10, 2017, MPLX completed a public offering of $1.25 billion aggregate principal amount
of 4.125% unsecured senior notes due March 2027 and $1.0 billion aggregate principal amount
of 5.200% unsecured senior notes due March 2047. MPLX intends to use the net proceeds from this offering for
general partnership purposes, which may include, from time to time, acquisitions (including the previously
announced planned dropdown of assets from MPC) and capital expenditures.
On February 13, 2017, MPLX announced that it had entered into an asset purchase agreement with Enbridge
Pipelines (Ozark) LLC (“Enbridge Ozark”), under which an affiliate of Pipe Line Holdings has agreed to
purchase the Ozark pipeline for approximately $220 million from Enbridge Ozark. The Ozark pipeline is a
433-mile, 22-inch crude oil pipeline originating in Cushing, Oklahoma, and terminating in Wood River, Illinois,
capable of transporting approximately 230 mbpd. The purchase transaction is expected to close in the first
quarter of 2017, subject to customary closing conditions, including regulatory approvals.
174
Selected Quarterly Financial Data (Unaudited)
(In millions, except per share data)
1st Qtr.
2nd Qtr.
3rd Qtr.
4th Qtr.
1st Qtr.
2nd Qtr.
3rd Qtr.
4th Qtr.
2016
2015
Revenues
Income from operations
Net income (loss)
Net income attributable to MPC
$12,755
$16,811
$16,618
$17,155
$17,191
$20,537
$18,716
$15,607
75
(78)
1
1,315
783
801
435
219
145
553
289
227
1,470
1,335
1,549
903
891
839
826
958
948
338
168
187
Net income attributable to MPC per
share:(a)
Basic
Diluted
Dividends paid per share
$ 0.003
$
1.51
$
0.28
$
0.43
$
1.63
$
1.52
$
1.77
$ 0.35
0.003
0.32
1.51
0.32
0.27
0.36
0.43
0.36
1.62
0.25
1.51
0.25
1.76
0.32
0.35
0.32
(a) We completed a two-for-one stock split in June 2015. All historical per share data has been retroactively restated on a post-split basis.
175
Supplementary Statistics (Unaudited)
(In millions)
Income from Operations by segment
Refining & Marketing(a)
Speedway(a)
Midstream(b)
Items not allocated to segments:
Corporate and other unallocated items(b)
Pension settlement expenses
Impairment(c)
Income from operations
Capital Expenditures and Investments(d)(e)
Refining & Marketing
Speedway
Midstream
Corporate and Other(f)
Total
2016
2015
2014
$
1,543
$
4,086
$
3,538
734
871
(277)
(7)
(486)
2,378
1,101
303
1,521
144
$
$
673
380
(299)
(4)
(144)
4,692
1,045
501
14,545
192
$
$
544
342
(277)
(96)
–
4,051
1,043
2,981
604
110
$
$
$
3,069
$
16,283
$
4,738
(a)
(b)
(c)
In 2016, the Refining & Marketing and Speedway segments include an inventory LCM benefit of $345 million and $25 million,
respectively. In 2015, the Refining & Marketing and Speedway segments include an inventory LCM charge of $345 million and
$25 million, respectively.
Included in the Midstream segment for 2016, 2015 and 2014 are $11 million, $20 million and $19 million of corporate overhead
expenses attributable to MPLX. The remaining corporate overhead expenses are not currently allocated to other segments, but instead
reported in corporate and other unallocated items.
2016 relates to impairments of goodwill and equity method investments. 2015 relates to the cancellation of the Residual Oil Upgrader
Expansion project. See Notes 15, 16 and 17 to the audited consolidated financial statements.
(d) Capital expenditures include changes in capital accruals.
(e)
(f)
Includes $13.85 billion in 2015 for the MarkWest Merger and $2.71 billion in 2014 for the acquisition of Hess’ Retail Operations and
Related Assets. See Note 5.
Includes capitalized interest of $63 million, $37 million and $27 million for 2016, 2015 and 2014, respectively.
176
Supplementary Statistics (Unaudited)
MPC Consolidated Refined Product Sales Volumes (mbpd)(a)
Refining & Marketing Operating Statistics
Refining & Marketing refined product sales volume (mbpd)(b)
Refining & Marketing gross margin (dollars per barrel)(c)(d)
Crude oil capacity utilization percent(e)
Refinery throughputs (mbpd):(f)
Crude oil refined
Other charge and blendstocks
Total
Sour crude oil throughput percent
WTI-priced crude oil throughput percent
Refined product yields (mbpd):(f)
Gasoline
Distillates
Propane
Feedstocks and special products
Heavy fuel oil
Asphalt
Total
Refinery direct operating costs (dollars per barrel):(g)
Planned turnaround and major maintenance
Depreciation and amortization
Other manufacturing(h)
Total
Refining & Marketing Operating Statistics By Region – Gulf Coast
Refinery throughputs (mbpd):(i)
Crude oil refined
Other charge and blendstocks
Total
Sour crude oil throughput percent
WTI-priced crude oil throughput percent
Refined product yields (mbpd):(i)
Gasoline
Distillates
Propane
Feedstocks and special products
Heavy fuel oil
Asphalt
Total
Refinery direct operating costs (dollars per barrel):(g)
Planned turnaround and major maintenance
Depreciation and amortization
Other manufacturing(h)
Total
177
2016
2015
2014
2,269
2,259
11.26
95
1,699
151
1,850
60
19
900
617
35
241
32
58
$
2,301
2,289
15.25
99
1,711
177
1,888
55
20
913
603
36
281
31
55
$
2,138
2,125
15.05
95
1,622
184
1,806
52
19
869
580
35
276
25
54
1,883
1,919
1,839
1.83
1.47
4.09
7.39
1,039
195
1,234
73
8
514
399
26
286
21
15
$
$
1.13
1.39
4.15
6.67
1,060
184
1,244
68
6
534
392
26
286
15
16
$
$
1.80
1.41
4.86
8.07
991
182
1,173
64
3
508
368
23
274
13
13
1,261
1,269
1,199
2.09
1.14
3.70
6.93
$
$
0.81
1.09
3.88
5.78
$
$
1.82
1.15
4.73
7.70
$
$
$
$
$
Supplementary Statistics (Unaudited)
Refining & Marketing Operating Statistics By Region – Midwest
2016
2015
2014
Refinery throughputs (mbpd):(i)
Crude oil refined
Other charge and blendstocks
Total
Sour crude oil throughput percent
WTI-priced crude oil throughput percent
Refined product yields (mbpd):(i)
Gasoline
Distillates
Propane
Feedstocks and special products
Heavy fuel oil
Asphalt
Total
Refinery direct operating costs (dollars per barrel):(g)
Planned turnaround and major maintenance
Depreciation and amortization
Other manufacturing(h)
Total
Speedway Operating Statistics(j)
Convenience stores at period-end(k)
Gasoline and distillate sales (millions of gallons)
Gasoline & distillate gross margin (dollars per gallon)(d)(l)
Merchandise sales (in millions)
Merchandise gross margin (in millions)
Merchandise gross margin percent
Same store gasoline sales volume (period over period)
Same store merchandise sales (period over period)(m)
Midstream Operating Statistics
Crude oil and refined product pipeline throughputs (mbpd)(n)
Gathering system throughput (MMcf/d)(o)
Natural gas processed (MMcf/d)(o)
C2 (ethane) + NGLs (natural gas liquids) fractionated (mbpd)(o)
660
39
699
40
38
386
218
11
35
12
43
705
1.15
1.88
4.29
7.32
2,733
6,094
0.1656
5,007
1,435
28.7%
(0.4)%
3.2%
2,311
3,275
5,761
335
$
$
$
$
$
651
39
690
34
43
379
211
12
38
17
39
696
1.64
1.83
4.36
7.83
2,766
6,038
0.1823
4,879
1,368
28.0%
(0.3)%
4.1%
2,191
3,075
5,468
307
$
$
$
$
$
631
45
676
33
44
361
212
13
43
13
41
683
1.66
1.78
4.76
8.20
2,746
3,942
0.1775
3,611
975
27.0%
(0.7)%
5.0%
2,119
$
$
$
$
$
(a)
(b)
(c)
(d)
Total average daily volumes of refined product sales to wholesale, branded and retail customers.
Includes intersegment sales.
Sales revenue less cost of refinery inputs and purchased products, divided by total refinery throughputs.
Excludes the lower of cost or market adjustment.
(e) Based on calendar day capacity, which is an annual average that includes downtime for planned maintenance and other normal operating
activities.
Excludes inter-refinery volumes of 83 mbpd, 46 mbpd and 43 mbpd for 2016, 2015 and 2014, respectively.
Per barrel of total refinery throughputs.
Includes utilities, labor, routine maintenance and other operating costs.
Includes inter-refinery transfer volumes.
Includes the impact of Hess’ Retail Operations and Related Assets from the September 30, 2014 acquisition date.
(f)
(g)
(h)
(i)
(j)
(k) Decrease in 2016 was primarily due to the contribution of 41 travel centers to the Pilot joint venture.
(l)
The price paid by consumers less the cost of refined products, including transportation, consumer excise taxes and bankcard processing
fees, divided by gasoline and distillate sales volume.
(m) Excludes cigarettes.
(n) On owned common-carrier pipelines, excluding equity method investments.
(o)
Includes the results of the MarkWest assets beginning on the Dec. 4, 2015 acquisition date. Includes amounts related to unconsolidated
equity method investments on a 100% basis.
178
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as
defined in Rules 13(a)-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended) was
carried out under the supervision and with the participation of our management, including our chief executive
officer and chief financial officer. Based upon that evaluation, the chief executive officer and chief financial
officer concluded that the design and operation of these disclosure controls and procedures were effective as of
December 31, 2016, the end of the period covered by this Annual Report on Form 10-K.
Internal Control over Financial Reporting and Changes in Internal Control over Financial Reporting
During the fourth quarter ended December 31, 2016, we completed the integration of MarkWest into our internal
control environment. See Item 8. Financial Statements and Supplementary Data – Management’s Report on
Internal Control over Financial Reporting and – Report of Independent Registered Public Accounting Firm,
which reports are incorporated herein by reference.
Item 9B. Other Information
None.
179
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information concerning our directors required by this item is incorporated by reference to the material appearing
under the sub-heading “Proposal No. 1 – Election of Class III Directors” located under the heading “Proposals of
the Board” in our Proxy Statement for the 2017 Annual Meeting of Shareholders. Information concerning our
executive officers is included in Part I, Item 1 of this Annual Report on Form 10-K.
Our board of directors has established the Audit Committee and determined our “Audit Committee Financial
Expert.” The related information required by this item is incorporated by reference to the material appearing
under the sub-headings “The Board of Directors” and “Audit Committee Financial Expert” located under the
heading “The Board of Directors and Corporate Governance” in our Proxy Statement for the 2017 Annual
Meeting of Shareholders.
We have adopted a Code of Ethics for Senior Financial Officers, which applies to our Chief Executive Officer,
Chief Financial Officer, Vice President and Controller, Treasurer and other persons performing similar functions.
It is available on our website at http://ir.marathonpetroleum.com by selecting “Corporate Governance” and
clicking on “Code of Ethics for Senior Financial Officers.”
Section 16(a) Beneficial Ownership Reporting Compliance
Information regarding compliance with Section 16(a) of the Securities Exchange Act of 1934 is set forth under
the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in our Proxy Statement for the 2017
Annual Meeting of Shareholders, which is incorporated herein by reference.
Item 11. Executive Compensation
Information required by this item is incorporated by reference to the material appearing under the headings
and “Executive
“Compensation Discussion and Analysis,”
Compensation;” under the sub-headings “Compensation Committee” and “Compensation Committee Interlocks
and Insider Participation” located under the heading “The Board of Directors and Corporate Governance;” and
under the headings “Compensation of Directors” and “Compensation Committee Report” in our Proxy Statement
for the 2017 Annual Meeting of Shareholders.
“Compensation-Based Risk Assessment”
180
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Information concerning security ownership of certain beneficial owners and management required by this item is
incorporated by reference to the material appearing under the headings “Security Ownership of Certain
Beneficial Owners” and “Security Ownership of Directors and Executive Officers” in our Proxy Statement for
the 2017 Annual Meeting of Shareholders.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides information as of December 31, 2016 with respect to shares of our common stock
that may be issued under the MPC 2012 Plan and the MPC 2011 Plan:
Plan category
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights(a)
Weighted-
average
exercise
price of
outstanding
options,
warrants
and rights(b)
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans(c)
Equity compensation plans approved by stockholders
10,141,025
$
28.93
43,002,076
Equity compensation plan not approved by stockholders
Total
(a)
Includes the following:
-
10,141,025
-
N/A
-
43,002,076
1)
2)
3)
9,531,440 stock options granted pursuant to the MPC 2012 Plan and the MPC 2011 Plan and not forfeited, cancelled or expired as
of December 31, 2016.
361,117 restricted stock units granted pursuant to the MPC 2012 Plan and the MPC 2011 Plan for shares unissued and not forfeited,
cancelled or expired as of December 31, 2016.
248,468 shares as the maximum potential number of shares that could be issued in settlement of performance units outstanding as of
December 31, 2016 pursuant to the MPC 2012 Plan, based on the closing price of our common stock on December 31, 2016 of
$50.35 per share. The number of shares reported for this award vehicle may overstate dilution. See Note 23 for more information on
performance unit awards granted under the MPC 2012 Plan.
In addition to the awards reported above, 1,250,343 shares of restricted stock have been issued pursuant to the MPC 2012 Plan and were
outstanding as of December 31, 2016.
(b) Restricted stock, restricted stock units and performance units are not taken into account in the weighted-average exercise price as such
awards have no exercise price.
(c) Reflects the shares available for issuance pursuant to the MPC 2012 Plan. All granting authority under the MPC 2011 Plan was revoked
following the approval of the MPC 2012 Plan by shareholders on April 25, 2012. No more than 17,199,310 of the shares reported in this
column may be issued for awards other than stock options or stock appreciation rights. The number of shares reported in this column
assumes 248,468 as the maximum potential number of shares that could be issued pursuant to the MPC 2012 Plan in settlement of
performance units outstanding as of December 31, 2016, based on the closing price of our common stock on December 31, 2016, of
$50.35 per share. The number of shares assumed for this award vehicle may understate the number of shares available for issuance
pursuant to the MPC 2012 Plan. See Note 23 for more information on performance unit awards granted pursuant to the MPC 2012 Plan.
Shares related to grants made pursuant to the MPC 2012 Plan that are forfeited, cancelled or expire unexercised become immediately
available for issuance under the MPC 2012 Plan.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information required by this item is incorporated by reference to the material appearing under the heading
“Certain Relationships and Related Person Transactions,” and under the sub-heading “Board and Committee
Independence” under the heading “The Board of Directors and Corporate Governance” in our Proxy Statement
for the 2017 Annual Meeting of Shareholders.
181
Item 14. Principal Accountant Fees and Services
Information required by this item is incorporated by reference to the material appearing under the heading
“Independent Registered Public Accounting Firm’s Fees, Services and Independence” in our Proxy Statement for
the 2017 Annual Meeting of Shareholders.
182
PART IV
Item 15. Exhibits and Financial Statement Schedules
A. Documents Filed as Part of the Report
1. Financial Statements (see Part II, Item 8. of this Annual Report on Form 10-K regarding financial statements)
2. Financial Statement Schedules
Financial statement schedules required under SEC rules but not included in this Annual Report on Form 10-K
are omitted because they are not applicable or the required information is contained in the consolidated
financial statements or notes thereto.
3. Exhibits:
Exhibit
Number
Exhibit Description
Form Exhibit
Filing
Date
SEC
File No.
Filed
Herewith
Furnished
Herewith
Incorporated by Reference
2
2.1 †
2.2 †
2.3 †
2.4 †
2.5 †
2.6
2.7
3
3.1
3.2
4
Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession
Separation and Distribution Agreement, dated as of May 25,
2011, among Marathon Oil Corporation, Marathon Oil Company
and Marathon Petroleum Corporation
Purchase and Sale Agreement, dated as of October 7, 2012, by
and among BP Products North America Inc. and BP Pipelines
(North America) Inc., as the Sellers and Marathon Petroleum
Company LP, as the Buyer
10
2.1
5/26/2011
001-35054
8-K
2.1
10/9/2012
001-35054
Purchase Agreement by and between Speedway LLC and Hess
Corporation, dated as of May 21, 2014
8-K
2.1
5/27/2014
001-35054
Amendment No. 1 effective as of September 30, 2014, to the
Purchase Agreement by and between Speedway LLC and Hess
Corporation, dated as of May 21, 2014
Agreement and Plan of Merger, dated as of July 11, 2015, by and
among MPLX LP, Sapphire Holdco LLC, MPLX GP LLC,
MarkWest Energy Partners, L.P. and, for certain limited
purposes set forth therein, Marathon Petroleum Corporation.
Amendment to Agreement and Plan of Merger, dated as of
November 10, 2015, by and among MPLX LP, Sapphire Holdco
LLC, MPLX GP LLC, MarkWest Energy Partners, L.P. and
Marathon Petroleum Corporation.
Amendment Number 2 to Agreement and Plan of Merger, dated
as of November 16, 2015, by and among MPLX LP, Sapphire
Holdco LLC, MPLX GP LLC, MarkWest Energy Partners, L.P.
and Marathon Petroleum Corporation.
Articles of Incorporation and Bylaws
8-K
2.2
10/6/2014
001-35054
8-K
2.1
7/16/2015
001-35054
8-K
2.1
11/12/2015 001-35054
8-K
2.1
11/17/2015 001-35054
Restated Certificate of Incorporation of Marathon Petroleum
Corporation
8-K
3.1
6/22/2011
001-35054
Amended and Restated Bylaws of Marathon Petroleum
Corporation
Instruments Defining the Rights of Security Holders,
Including Indentures
183
X
Exhibit
Number
Exhibit Description
Form Exhibit
Filing
Date
SEC
File No.
Filed
Herewith
Furnished
Herewith
Incorporated by Reference
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
10
10.1
10.2
10.3
10.4
10
4.1
5/26/2011
001-35054
10
4.2
5/26/2011
001-35054
10-Q 4.1
11/3/2014
001-35054
8-K
4.1
12/14/2015 001-35054
8-K
4.1
2/12/2015
001-35714
8-K
4.2
2/12/2015
001-35714
8-K
4.2
12/22/2015 001-35714
8-K
4.3
12/22/2015 001-35714
8-K
4.4
12/22/2015 001-35714
8-K
4.5
12/22/2015 001-35714
8-K
4.1
12/22/2015 001-35714
10
10.1
5/26/2011
001-35054
10
10.2
5/26/2011
001-35054
8-K 10.1
7/1/2011
001-35054
8-K 10.1
12/23/2013 001-35054
Indenture dated as of February 1, 2011 between Marathon
Petroleum Corporation and The Bank of New York Mellon Trust
Company, N.A., as Trustee
Form of the terms of the 3 1/2% Senior Notes due 2016, 5 1/8%
Senior Notes due 2021 and 6 1/2% Senior Notes due 2041 of
Marathon Petroleum Corporation (including Form of Notes)
First Supplemental Indenture, dated as of September 5, 2014, by
and between Marathon Petroleum Corporation and The Bank of
New York Mellon Trust Company, N.A., as trustee (including
Form of Notes)
Second Supplemental Indenture, dated as of December 14, 2015,
by and between Marathon Petroleum Corporation and the Bank
of New York Mellon Trust Company, N.A., as trustee (including
Form of Notes)
Indenture, dated February 12, 2015, between MPLX LP and The
Bank of New York Mellon Trust Company, N.A., as Trustee
First Supplemental Indenture, dated February 12, 2015, between
MPLX LP and The Bank of New York Mellon Trust Company,
N.A., as Trustee (including Form of Notes)
Second Supplemental Indenture, dated as of December 22, 2015,
by and between MPLX LP and the Bank of New York Mellon
Trust Company, N.A. (including Form of Note)
Third Supplemental Indenture, dated as of December 22, 2015,
by and between MPLX LP and the Bank of New York Mellon
Trust Company, N.A. (including Form of Note)
Fourth Supplemental Indenture, dated as of December 22, 2015,
by and between MPLX LP and the Bank of New York Mellon
Trust Company, N.A. (including Form of Note)
Fifth Supplemental Indenture, dated as of December 22, 2015, by
and between MPLX LP and the Bank of New York Mellon Trust
Company, N.A. (including Form of Note)
Registration Rights Agreement dated as of December 22, 2015
by and among MPLX LP, MPLX GP LLC, and each of
Citigroup Global Markets Inc., J.P. Morgan Securities LLC and
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Material Contracts
Tax Sharing Agreement dated as of May 25, 2011 by and among
Marathon Oil Corporation, Marathon Petroleum Corporation and
MPC Investment LLC
Employee Matters Agreement dated as of May 25, 2011 by and
between Marathon Oil Corporation and Marathon Petroleum
Corporation
Amendment to Employee Matters Agreement, dated as of
June 30, 2011 by and between Marathon Oil Corporation and
Marathon Petroleum Corporation
Receivables Purchase Agreement, dated as of December 18,
2013, by and among MPC Trade Receivables Company, LLC,
Marathon Petroleum Company LP, The Bank of Tokyo-
Mitsubishi UFJ, Ltd., New York Branch, as administrative agent
and sole lead arranger, certain committed purchasers and conduit
purchasers that are parties thereto from time to time and certain
other parties thereto from time to time as managing agents and
letter of credit issuers.
184
Exhibit
Number
10.5
10.6
10.7
10.8
10.9
10.10
Exhibit Description
Form Exhibit
Filing
Date
SEC
File No.
Filed
Herewith
Furnished
Herewith
Incorporated by Reference
Second Amended and Restated Receivables Sale Agreement,
dated as of December 18, 2013, by and between Marathon
Petroleum Company LP and MPC Trade Receivables Company
LLC
$2,500,000,000 Four-Year Credit Agreement, dated July 20,
2016, by and among Marathon Petroleum Corporation, as
borrower, JPMorgan Chase Bank, N.A., as administrative agent,
each of JPMorgan Chase Bank, N.A., Citigroup Global Markets
Inc., Barclays Bank PLC, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Mizuho Bank, Ltd., The Bank of Tokyo-Mitsubishi
UFJ, Ltd., UBS Securities LLC, and Wells Fargo Securities,
LLC, as joint lead arrangers and joint bookrunners, Citigroup
Global Markets Inc., as syndication agent, each of Bank of
America, N.A., Barclays Bank PLC, Mizuho Bank, Ltd., The
Bank of Tokyo-Mitsubishi UFJ, Ltd., UBS Securities LLC, and
Wells Fargo Bank, National Association, as documentation
agents, and several other commercial lending institutions that are
party thereto.
$1,000,000,000 364-Day Revolving Credit Agreement, dated
July 20, 2016, by and among Marathon Petroleum Corporation,
as borrower, JPMorgan Chase Bank, N.A., as administrative
agent, each of JPMorgan Chase Bank, N.A., Citigroup Global
Markets Inc., Barclays Bank PLC, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Mizuho Bank, Ltd., The Bank of
Tokyo-Mitsubishi UFJ, Ltd., UBS Securities LLC, and Wells
Fargo Securities, LLC, as joint lead arrangers and joint
bookrunners, Citigroup Global Markets Inc., as syndication
agent, each of Bank of America, N.A., Barclays Bank PLC,
Mizuho Bank, Ltd., The Bank of Tokyo-Mitsubishi UFJ, Ltd.,
UBS Securities LLC, and Wells Fargo Bank, National
Association, as documentation agents, and several other
commercial lending institutions that are party thereto.
Credit Agreement, dated as of November 20, 2014, among
MPLX LP, as borrower, Citibank, N.A., as administrative agent,
each of Citigroup Global Markets Inc., Wells Fargo Securities,
LLC, Barclays Bank PLC, J.P. Morgan Securities LLC, Merrill
Lynch, Pierce, Fenner & Smith Incorporate and RBS Securities
Inc., as joint lead arrangers and joint bookrunners, Wells Fargo
Bank, N.A., as syndication agent, and each of Bank of America,
N.A., Barclays Bank PLC, JPMorgan Chase Bank, N.A., and
The Royal Bank of Scotland PLC, as documentation agents, and
the other lenders and issuing banks that are parties thereto.
Contribution, Conveyance and Assumption Agreement, dated as
of October 31, 2012, among MPLX LP, MPLX GP LLC, MPLX
Operations LLC, MPC Investment LLC, MPLX Logistics
Holdings LLC, Marathon Pipe Line LLC, MPL Investment LLC,
MPLX Pipe Line Holdings LP and Ohio River Pipe Line LLC.
Omnibus Agreement, dated as of October 31, 2012, among
Marathon Petroleum Corporation, Marathon Petroleum Company
LP, MPL Investment LLC, MPLX Operations LLC, MPLX
Terminal and Storage LLC, MPLX Pipe Line Holdings LP,
Marathon Pipe Line LLC, Ohio River Pipe Line LLC, MPLX LP
and MPLX GP LLC.
8-K 10.2
12/23/2013 001-35054
8-K 10.1
7/26/2016
001-35054
8-K 10.2
7/26/2016
001-35054
8-K 10.1
11/26/2014 001-35054
8-K 10.1
11/6/2012
001-35054
8-K 10.2
11/6/2012
001-35054
10.11*
Marathon Petroleum Corporation Second Amended and Restated
2011 Incentive Compensation Plan
S-3
4.3
12/7/2011 333-175286
185
Exhibit
Number
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
10.18*
10.19*
10.20*
10.21*
10.22*
10.23*
10.24*
10.25*
10.26*
10.27 * `
10.28*
10.29*
10.30*
10.31*
10.32*
10.33*
Exhibit Description
Form Exhibit
Filing
Date
SEC
File No.
Filed
Herewith
Furnished
Herewith
Incorporated by Reference
Marathon Petroleum Corporation Policy for Recoupment of
Annual Cash Bonus Amounts
10-K 10.10
2/29/2012
001-35054
Marathon Petroleum Corporation Deferred Compensation Plan
for Non-Employee Directors
10-K 10.13
2/28/2013
001-35054
Marathon Petroleum Amended and Restated Excess Benefit Plan
X
Marathon Petroleum Amended and Restated Deferred
Compensation Plan
10-K 10.13
2/29/2012
001-35054
Marathon Petroleum Corporation Executive Tax, Estate, and
Financial Planning Program
10-K 10.14
2/29/2012
001-35054
Speedway Excess Benefit Plan
10-K 10.15
2/29/2012
001-35054
Speedway Deferred Compensation Plan
10-K 10.16
2/29/2012
001-35054
Form of Marathon Petroleum Corporation Amended and
Restated 2011 Incentive Compensation Plan – Section 16 Officer
Restricted Stock Award Agreement (3 year pro rata vesting)
Form of Marathon Petroleum Corporation Amended and
Restated 2011 Incentive Compensation Plan – Section 16 Officer
Restricted Stock Award Agreement (3 year cliff vesting)
Form of Marathon Petroleum Corporation Amended and
Restated 2011 Incentive Compensation Plan Nonqualified Stock
Option Award Agreement – Section 16 Officer
Form of Marathon Petroleum Corporation 2011 Incentive
Compensation Plan Supplemental Restricted Stock Award
Agreement – Section 16 Officer
Form of Marathon Petroleum Corporation 2011 Incentive
Compensation Plan Supplemental Nonqualified Stock Option
Award Agreement – Section 16 Officer
Form of Marathon Petroleum Corporation 2011 Incentive
Compensation Plan Supplemental Restricted Stock Unit Award
Agreement – Non-Employee Director
Form of Marathon Petroleum Corporation Amended and
Restated 2011 Incentive Compensation Plan – Performance Unit
Award Agreement
Marathon Petroleum Corporation Amended and Restated
Executive Change in Control Severance Benefits Plan
Form of Marathon Petroleum Corporation Performance Unit
Award Agreement – 2012-2014 Performance Cycle
Form of Marathon Petroleum Corporation Restricted Stock
Award Agreement – Officer
8-K 10.4
7/7/2011
001-35054
8-K 10.5
7/7/2011
001-35054
8-K 10.6
7/7/2011
001-35054
8-K 10.1
12/7/2011
001-35054
8-K 10.2
12/7/2011
001-35054
10-K 10.22
2/29/2012
001-35054
10-K 10.23
2/29/2012
001-35054
10-K 10.26
2/28/2013
001-35054
10-Q 10.3
5/9/2012
001-35054
10-Q 10.4
5/9/2012
001-35054
Form of Marathon Petroleum Corporation Nonqualified Stock
Option Award Agreement – Officer
10-Q 10.5
5/9/2012
001-35054
Marathon Petroleum Corporation 2012 Incentive Compensation
Plan
S-8
4.3
4/27/2012 333-181007
Marathon Petroleum Annual Cash Bonus Program
X
MPC Non-Employee Director Phantom Unit Award Policy
10-K 10.32
2/28/2013
001-35054
Form of Marathon Petroleum Corporation Performance Unit
Award Agreement – 2013-2015 Performance Cycle
10-Q 10.1
5/9/2013
001-35054
186
Exhibit
Number
10.34*
10.35*
10.36*
10.37*
10.38*
10.39*
10.40
10.41*
10.42*
10.43
Exhibit Description
Form Exhibit
Filing
Date
SEC
File No.
Filed
Herewith
Furnished
Herewith
Incorporated by Reference
Form of Marathon Petroleum Corporation Restricted Stock
Award Agreement – Officer
10-Q 10.2
5/9/2013
001-35054
Form of Marathon Petroleum Corporation Nonqualified Stock
Option Award Agreement – Officer
10-Q 10.3
5/9/2013
001-35054
MPLX LP – Form of MPC Officer Phantom Unit Award
Agreement
10-Q 10.4
5/9/2013
001-35054
MPLX LP – Form of MPC Officer Performance Unit Award
Agreement – 2013-2015 Performance Cycle
10-Q 10.5
5/9/2013
001-35054
Amendment to Certain Outstanding MPC Restricted Stock
Award Agreements and Performance Unit Award Agreements of
Garry L. Peiffer
10-K 10.38
2/28/2014
001-35054
Form of Marathon Petroleum Corporation Performance Unit
Award Agreement – 2014-2016 Performance Cycle
10-Q 10.1
5/5/2014
001-35054
8-K 10.1
8/29/2014
001-35054
Term Loan Agreement, dated August 26, 2014, by and among
Marathon Petroleum Corporation, as borrower, The Royal Bank
of Scotland PLC, as administrative agent, each of RBS Securities
Inc., The Bank of Tokyo-Mitsubishi UFJ, Ltd. Barclays Bank
PLC, Citigroup Global Markets Inc., and Morgan Stanley Senior
Funding, Inc., as joint lead arrangers and joint bookrunners. The
Bank of Tokyo-Mitsubishi UFJ, Ltd., as syndication agent, each
of Barclays Bank PLC, Citigroup Global Markets Inc. and
Morgan Stanley Senior Funding, Inc., as documentation agents,
and several other commercial lending institutions that are parties
thereto
First Amendment to the Marathon Petroleum Corporation
Amended and Restated 2011 Incentive Compensation Plan
10-Q 10.1
8/3/2015
001-35054
First Amendment to the Marathon Petroleum Corporation 2012
Incentive Compensation Plan
10-Q 10.2
8/3/2015
001-35054
Amendment Agreement, dated as of October 27, 2015, to Credit
Agreement, dated November 20, 2014 by and among MPLX LP,
Citibank, N.A., Wells Fargo Bank, National Association, and the
other institutions named on the signature pages thereto.
8-K 10.1
11/2/2015
001-35054
10.44*
Retention Agreement, by and between Marathon Petroleum
Company LP and Randy S. Nickerson, dated November 13, 2015
10-K 10.44
2/26/2016
001-35054
10.45*
Marathon Petroleum Thrift Plan
X
10.46
10.47
10.48
10.49
Loan Agreement, by and between MPLX LP and MPC
Investment LLC, dated December 4, 2015
8-K 10.1
12/10/2015 001-35054
First Amendment to Receivables Purchase Agreement, dated
July 20, 2016, by and among MPC Trade Receivables Company
LLC, Marathon Petroleum Company LP, The Bank of Tokyo-
Mitsubishi UFJ., Ltd., New York Branch, as administrative agent
and sole lead arranger, certain committed purchasers and conduit
purchasers that are parties thereto from time to time and certain
other parties thereto from time to time as managing agents and
letter of credit issuers.
8-K 10.3
7/26/2016
001-35054
Form of Marathon Petroleum Corporation Performance Unit
Award Agreement
10-Q 10.1
5/2/2016
001-35054
Form of Marathon Petroleum Corporation Restricted Stock
Award Agreement – Officer
10-Q 10.2
5/2/2016
001-35054
187
Exhibit Description
Form Exhibit
Filing
Date
SEC
File No.
Filed
Herewith
Furnished
Herewith
Incorporated by Reference
Form of Marathon Petroleum Corporation Nonqualified Stock
Option Award Agreement – Officer
10-Q 10.3
5/2/2016
001-35054
Form of MPLX LP Performance Unit Award Agreement –
Marathon Petroleum Corporation Officer
10-Q 10.4
5/2/2016
001-35054
Form of MPLX LP Phantom Unit Award Agreement – Marathon
Petroleum Corporation Officer
10-Q 10.5
5/2/2016
001-35054
Exhibit
Number
10.50
10.51
10.52
12.1
14.1
21.1
23.1
24.1
31.1
31.2
32.1
32.2
Computation of Ratio of Earnings to Fixed Charges
Code of Ethics for Senior Financial Officers
List of Subsidiaries
Consent of Independent Registered Public Accounting Firm
Power of Attorney of Directors and Officers of Marathon
Petroleum Corporation
Certification of Chief Executive Officer pursuant to Rule
13(a)-14 and 15(d)-14 under the Securities Exchange Act of
1934.
Certification of Chief Financial Officer pursuant to Rule 13(a)-14
and 15(d)-14 under the Securities Exchange Act of 1934.
Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350.
Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350.
101.INS
XBRL Instance Document.
101.SCH
XBRL Taxonomy Extension Schema.
101.PRE
XBRL Taxonomy Extension Presentation Linkbase.
101.CAL
XBRL Taxonomy Extension Calculation Linkbase.
101.DEF
XBRL Taxonomy Extension Definition Linkbase.
101.LAB
XBRL Taxonomy Extension Label Linkbase.
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
†
*
The exhibits and schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K and will be provided to the Securities and
Exchange Commission upon request.
Indicates management contract or compensatory plan, contract or arrangement in which one or more directors or executive officers of the
Registrant may be participants.
188
Item 16. Form 10-K Summary
Not applicable.
189
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
February 24, 2017
MARATHON PETROLEUM CORPORATION
By:
/s/ John J. Quaid
John J. Quaid
Vice President and Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on February 24, 2017 on behalf of the registrant and in the capacities indicated.
Signature
Title
/s/ Gary R. Heminger
Gary R. Heminger
/s/ Timothy T. Griffith
Timothy T. Griffith
/s/ John J. Quaid
John J. Quaid
*
Abdulaziz F. Alkhayyal
*
Evan Bayh
*
Charles E. Bunch
*
David A. Daberko
*
Steven A. Davis
*
Donna A. James
*
James E. Rohr
*
Frank M. Semple
Chairman of the Board, President and Chief Executive Officer
(principal executive officer)
Senior Vice President and Chief Financial Officer
(principal financial officer)
Vice President and Controller
(principal accounting officer)
Director
Director
Director
Director
Director
Director
Director
Director
190
Title
Signature
*
John W. Snow
*
J. Michael Stice
*
John P. Surma
Director
Director
Director
* The undersigned, by signing his name hereto, does sign and execute this report pursuant to the Power of
Attorney executed by the above-named directors and officers of the registrant, which is being filed herewith on
behalf of such directors and officers.
By:
/s/ Gary R. Heminger
February 24, 2017
Gary R. Heminger
Attorney-in-Fact
191
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MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT
CORPORATE INFORMATION
Corporate Headquarters
539 South Main St.
Findlay, OH 45840
Marathon Petroleum Corporation Website
www.marathonpetroleum.com
Investor Relations Office
539 South Main St.
Findlay, OH 45840
MPCInvestorRelations@marathonpetroleum.com
Lisa Wilson, Director
Investor Relations
(419) 421-2071
Denice Myers, Manager
Investor Relations
(419) 421-2965
Doug Wendt, Manager
Investor Relations
(419) 421-2423
Notice of Annual Meeting
The 2017 Annual Meeting of Shareholders
will be held in Findlay, Ohio, on April 26, 2017.
Independent Accountants
PricewaterhouseCoopers LLP
406 Washington Street, Suite 200
Toledo, OH 43604
Stock Exchange Listing
New York Stock Exchange
Common Stock Symbol
MPC
Principal Stock Transfer Agent
Computershare
Shareholder correspondence should be mailed to:
P.O. Box 30170
College Station, TX 77842-3170
Overnight correspondence should be mailed to:
211 Quality Circle, Suite 210
College Station, TX 77845
(866) 820-7494 (toll free – U.S., Canada,
Puerto Rico)
(781) 575-2176 (other non-U.S. jurisdictions)
web.queries@computershare.com
Annual Report on Form 10-K
Additional copies of the Marathon Petroleum
Corporation 2016 Annual Report may be obtained
by contacting:
Public Affairs
539 South Main St.
Findlay, OH 45840
(419) 421-3577
Dividends
Dividends on common stock, as may be declared by
the board of directors, are typically paid mid-month in
March, June, September and December.
Dividend Checks Not Received / Electronic Deposit
If you do not receive your dividend check on the appropriate
payment date, we suggest that you wait at least 10 days after the
payment date to allow for any delay in mail delivery. After that time,
advise Computershare by phone or in writing to issue a replacement
check. You may contact Computershare to authorize electronic
deposit of your dividends into your bank account.
Dividend Reinvestment and Direct Stock Purchase Plan
The Dividend Reinvestment and Direct Stock Purchase Plan
provides stockholders with a convenient way to purchase additional
shares of Marathon Petroleum Corporation common stock through
investment of cash dividends or through optional cash payments.
Stockholders of record can request a copy of the Plan Prospectus
and an authorization form from Computershare. Beneficial holders
should contact their brokers.
Book-entry Form of Stock Ownership
Marathon Petroleum Corporation exclusively maintains book-entry
form of stockholder ownership. Account statements issued by stock
transfer agent, Computershare, shall serve as stockholders’ record
of ownership. Questions regarding stock ownership should be
directed to Computershare.
Taxpayer Identification Number
Federal law requires that each stockholder provide a certified
taxpayer identification number (TIN) for his/her stockholder account.
For individual stockholders, your TIN is your Social Security number.
If you do not provide a certified TIN, Computershare may be
required to withhold 28 percent for federal income taxes from your
dividends.
Address Change
It is important that you notify Computershare immediately, by
phone, in writing or by fax, when you change your address.
Seasonal addresses can be entered for your account.
Stock Return Performance Graph
The following performance graph compares the cumulative
total return, assuming the reinvestment of dividends, of a $100
investment in our common stock from Dec. 31, 2011, to Dec. 31,
2016, compared to the cumulative total return of a $100 investment
in the S&P 500 Index and an index of peer companies (selected by
us) for the same period. Our peer group consists of the following
companies that engage in domestic refining operations: BP
plc, Royal Dutch Shell plc, Chevron Corporation, HollyFrontier
Corporation, Phillips 66 (ConocoPhillips prior to May 1, 2012),
Tesoro Corporation, ExxonMobil Corporation, and Valero Energy
Corporation.
The following performance graph is not “soliciting material” and will not be deemed
to be filed with the Securities and Exchange Commission (SEC) or incorporated
by reference into any of MPC’s filings with the SEC, except to the extent that we
specifically incorporate it by reference into any such filings.
Comparison of Cumulative Total Return
on $100 Invested in MPC Common Stock
on Dec. 31, 2011 vs. S&P 500 Index and Peer Group Index
$400
$400
$350
$350
$300
$300
$250
$250
$200
$200
$150
$150
$100
$100
$50
$50
$0
$0
12/11
12/11
MPC
12/12
12/12
12/13
12/13
12/14
12/14
12/15
12/15
12/16
12/16
Peer Group Index
Standard & Poor’s 500 Index
Total Return
On back cover: MPC’s refinery in Robinson, Illinois
MARATHON PETROLEUM CORPORATION
539 South Main St.
Findlay, OH 45840
Disclosures Regarding Forward-Looking Statements
This summary annual report wrap includes forward-looking statements. You can identify our forward-looking statements by words such as “anticipate,” “believe,”
“design,” “estimate,” “expect,” “forecast,” “goal,” “guidance,” “imply,” “intend,” “objective,” “opportunity,” “outlook,” “plan,” “position,” “pursue,” “prospective,”
“predict,” “project,” “potential,” “seek,” “strategy,” “target,” “could,” “may,” “should,” “would,” “will” or other similar expressions that convey the uncertainty of future
events or outcomes. We have based our forward-looking statements on our current expectations, estimates and projections about our industry and our company. We
caution that these statements are not guarantees of future performance and you should not rely unduly on them, as they involve risks, uncertainties and assumptions
that we cannot predict. In addition, we have based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate.
While our management considers these assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and
other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. Accordingly, our actual results may differ
materially from the future performance that we have expressed or forecast in our forward-looking statements. In accordance with “safe harbor” provisions of the Private
Securities Litigation Reform Act of 1995, we have included in our attached Form 10-K for the year ended Dec. 31, 2016, cautionary language identifying important
factors, though not necessarily all such factors, that could cause future outcomes to differ materially from those set forth in the forward-looking statements.
16