A Look at Marathon Petroleum’s Cash Flow Position

Maitali Ramkumar - Author

Aug. 18 2020, Updated 5:19 a.m. ET

Marathon Petroleum’s cash flow

In 9M17, Marathon Petroleum (MPC) generated around $3.9 billion in cash flow from operations. The company had cash outflows of $2.2 billion in the form of an addition to plant, property, and equipment (or PPE) and acquisitions, as well as $0.6 billion in the form of dividends. The acquisition outflow was related to purchase of the Ozark pipeline by MPLX (MPLX).

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Marathon Petroleum’s cash flow surplus

Marathon Petroleum’s cash outflows totaled ~$2.8 billion in 9M17 if we consider the PPE additions, acquisition, and dividend payments. This led to a surplus of ~$1.1 billion, which is the difference between cash from operations of $3.9 billion and outflows of $2.8 billion.

MPC also saw a rise in debt (net long-term and short-term debt) in 9M17. The surplus and debt proceeds were utilized to make investments, buy back shares, and grow cash reserves.

MPC repurchased $1.6 billion in shares in 9M17. MPC’s cash balance rose from $0.9 billion at the beginning of 9M17 to $2.1 billion at the end of 9M17.

Peers’ cash flows

MPC’s cash flow excess as a percentage of its earnings ability, or cash flow from operations, stood at 28.0%. Valero Energy (VLO) saw a cash flow excess of 42.0% in 9M17. Andeavor (ANDV) and Phillips 66 (PSX) witnessed cash flow shortfalls of 87.0% and 36.0%, respectively, in 9M17.

For more on refiners’ cash flow shortfalls or excesses, you can refer to How Do Refiners’ Cash Flow Positions Look in 2017 So Far?

Marathon Petroleum’s cash flow analysis

MPC has a cash flow surplus in 9M17, which is a favorable scenario. However, in 9M17, MPC had net debt inflows rather than the outflow witnessed in 9M16. This means that MPC is increasing its leverage. In 9M17, MPC’s share repurchases stood higher than in 9M16, pointing toward the fact that the company is prioritizing its shareholders’ returns.

Along with shareholders’ returns, MPC also focuses on growth via capex and acquisitions. MPC’s growth activities in its Midstream and Marketing segments could result in higher earnings from these segments. This activity could shield MPC’s cash flows from the volatility in refining earnings. If the refining environment improves, MPC’s overall cash flows could improve.

In the next article, let’s look at MPC’s capex trend in 3Q17.


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