162016 | ANNUAL REPORT 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 16 To Shareholders
CONTENTS 1 CHAIRMAN, PRESIDENT AND CEO LETTER 3 REFINING AND MARKETING 6 SPEEDWAY 9 MIDSTREAM 12 GROWTH AND ENHANCING SHAREHOLDER VALUE 15 FINANCIAL AND OPERATIONAL HIGHLIGHTS
16 BOARD OF DIRECTORS On cover: MPC’s refinery in Canton, Ohio
17 CORPORATE OFFICERS On this page: MPC’s refinery in Catlettsburg, Kentucky MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT
From the Chairman, President and CEO
Fellow shareholders, Marathon Petroleum Corporation delivered strong operational and financial performance for our shareholders in 2016, a $13.1 28% year that marked our fifth year as a stand-alone company COMPOUND ANNUAL and our first year incorporating the MarkWest business in our BILLION GROWTH RATE operations. We also announced plans for strategic actions to IN BASE DIVIDEND CUMULATIVE NET INCOME SINCE SPINOFF enhance shareholder value in 2017. ATTRIBUTABLE TO MPC SINCE SPINOFF 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) 1 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 Re ning S&P Group(1) Peers(2) 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. 22 facility in Houston, Pennsylvania MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT 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.
75of 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 3 MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT
INCREASING EXPORT CAPACITY Thousand Barrels Per Day 510*
395 365 345 320
150
Export dock at MPC’s Garyville, Louisiana, refinery 2012 2013 2014 2015 2016 2019 *Estimated
We executed on our refinery turnaround activity per day, increasing our total export capacity in 2016, completing significant projects at our from Galveston Bay and Garyville to nearly Robinson, Illinois; Garyville, Louisiana; and 400,000 barrels per day, and further expanding Galveston Bay, Texas, refineries. Our Garyville our product placement flexibility and optionality. refinery successfully completed its largest We also completed the first phase of our turnaround in history, allowing us to increase multi-year STAR program at the Galveston Bay production of high-value products such as refinery in Texas City, improving profitability of alkylate and light products. the refinery by increasing the conversion of In Robinson, we completed a project to increase residual oil to lighter products by 20,000 barrels light crude processing and overall crude capacity, per day. improving the refinery’s flexibility to optimize its Looking ahead, we plan to continue margin- crude slate and product yields in a variety of enhancing investments such as the Garyville market conditions. distillate projects, Galveston Bay export We completed an expansion of our export capacity expansion and continuation of the capacity at Galveston Bay, increasing the STAR program. refinery’s export capacity by 30,000 barrels 4 MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT
MPC’s Catlettsburg, Kentucky, refinery
TOTAL REFINERY MECHANICAL THROUGHPUTS AVAILABILITY* Million Barrels Per Day Percentage of Combined 1.89 Unit Capacity 1.81 1.85
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 5 MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT
SPEEDWAY
In 2016, Speedway, the second-largest merchandise gross margins across the chain of company-owned and operated network making significant progress retail gasoline and convenience stores in toward our goal of generating two-thirds the United States, continued to exceed our of gross margins from merchandise sales expectations, delivering record contributions and one-third from fuel sales. With the to the company’s financial results by driving conversions completed ahead of schedule marketing-enhancement opportunities and and under budget, we are realizing greater continuing to realize acquisition synergies synergies than expected and realizing across the network. Speedway set segment them at a faster pace. Speedway achieved records in income from operations, light approximately $150 million in synergies in product gallons sold, merchandise sales, 2015 and approximately $180 million in and merchandise gross margin on a synergies in 2016. We anticipate synergies percentage and absolute dollar basis. of approximately $225 million in 2017 as we continue to focus on marketing- During 2016, we completed the final enhancement opportunities. store conversions of the 1,230 locations Speedway acquired in 2014. We improved 2,733 convenience stores in
21 states
5.7 MILLION ACTIVE MEMBERS OF THE SPEEDY REWARDS® PROGRAM IN 2016* 6 *12-month rolling average MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT
Speedway continues to build new stores SPEEDWAY SPEEDWAY MERCHANDISE while rebuilding and remodeling existing MERCHANDISE SALES GROSS MARGIN stores in core markets. We opened 18 new $ Billion $ Million 1,435 stores and six rebuilds in 2016 and completed 1,368* nearly 350 remodel projects, with more of 4.88* 5.01
these high-return investments planned for 975* 2017. The accelerated pace of remodels 3.61* 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 2014 2015 2016 2014 2015 2016 consisting of 123 travel plazas, primarily in *Includes impact of acquisition, closed Sept. 30, 2014 the Southeast United States. Speedway contributed 41 locations and Pilot Flying J (Continued on Page 8)
Top: Inside a Speedway store in Springfield, Ohio Above: A Speedway store in Findlay, Ohio An MPC fuel transport truck at a Speedway store in Columbia, Tennessee 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
8 A Speedway store in Enon, Ohio MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT 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 9 MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT
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 10 MPC employees at a Cornerstone Pipeline station MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT
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 11 MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT
GROWTH AND ENHANCING SHAREHOLDER VALUE
As a company, MPC drew upon its The proceeds from the dropdowns, Since our formation in 2011, we have strengths in 2016 in order to deliver along with the LP distributions MPC generated more than $13 billion in solid results despite a challenging year will receive following the exchange, net income and increased our base from a commodity price and margin are expected to fund substantial dividend at a 28 percent compound perspective. Among the year’s notable ongoing returns of capital to MPC annual growth rate through 2016. We performances were record financial shareholders. As always, we intend have returned more than $10 billion to results from our Speedway and to do this in a manner consistent shareholders. Midstream segments. with maintaining an investment-grade While we at MPC continue to credit profile at both MPC and MPLX. Looking forward, we are enthusiastic work with a near-term intensity to Additionally, a special committee of about our plans to enhance execute strategic actions we expect the Board has been formed and, with shareholder value and remain to enhance shareholder value, we the assistance of an independent encouraged by the opportunities remain committed in the long term financial advisor, will perform a full ahead. We are energized by the to operational excellence, generating and thorough review of Speedway, to growth opportunities at MPLX and compelling capital returns and ensure optimum value is delivered to our Midstream segment, which will delivering enduring value for our shareholders over the long term. We continue to be a source of long-term shareholders. expect to provide an update on this value for our investors. MPC plans to review to shareholders by mid-2017. exchange our economic interests in the general partner, including incentive Our capital investment plans for both distribution rights, for LP units, in MPC and MPLX remain focused on conjunction with the completion of the strengthening the sustained earnings accelerated dropdowns. We believe power of our business through growth this will provide a clear marker on the and margin-enhancing projects, as substantial value of MPC’s midstream well as expanding our more stable interests and optimize the cost of cash-flow businesses. capital for MPLX over the long term.
12 MarkWest’s Hidalgo complex in Orla, Texas MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT MARATHON PETROLEUM CORPORATION | 2016 ANNUAL REPORT
MPC LOGISTICS
CRUDE OIL REFINING CAPACITY 63 121 18 2 BPCD NCI* Owned and Third-party Owned Third-party part-owned light product asphalt asphalt Galveston Bay 459,000 13.0 light product terminals terminals terminals Garyville 543,000 11.2 terminals Detroit 132,000 9.9 Robinson 231,000 9.8 Approximate miles of pipeline that MPC Catlettsburg 273,000 9.3 8,400 owns, leases or has ownership interest in Canton 93,000 7.8 Texas City 86,000 7.8 Inland Owned Leased waterway barges barges TOTAL 1,817,000 10.7** 18 towboats 204 18 *Nelson Complexity Index (NCI) calculated per Oil & Gas Journal NCI formula Owned transport trucks Owned or leased railcars **Weighted Average NCI BPCD: barrels per calendar day 163 2,074 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 As of Dec. 31, 2016