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Executives

Pamela K. M. Beall - Vice President of Investor Relations & Government & Public Affairs

Gary R. Heminger - Chief Executive Officer, President, Director and Member of Executive Committee

Garry L. Peiffer - Executive Vice President of Corporate Planning and Investor & Government Relations

Donald C. Templin - Chief Financial Officer and Senior Vice President

C. Michael Palmer - Senior Vice President of Supply Distribution & Planning

Richard D. Bedell - Senior Vice President of Refining

Analysts

Edward Westlake - Crédit Suisse AG, Research Division

Chi Chow - Macquarie Research

Arjun N. Murti - Goldman Sachs Group Inc., Research Division

Evan Calio - Morgan Stanley, Research Division

Jeffrey A. Dietert - Simmons & Company International, Research Division

Douglas Terreson - ISI Group Inc., Research Division

Faisel Khan - Citigroup Inc, Research Division

Roger D. Read - Wells Fargo Securities, LLC, Research Division

Eli Bauman - Barclays Capital, Research Division

Marathon Petroleum (MPC) Q3 2012 Earnings Call November 1, 2012 10:00 AM ET

Operator

Welcome to the Marathon Petroleum Corporation Third Quarter 2012 Earnings Conference Call. My name is Sandra, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Ms. Pam Beall. Ms. Beall, you may begin.

Pamela K. M. Beall

Thank you, Sandra, and welcome to Marathon Petroleum Corporation's Third Quarter Earnings Webcast and Conference Call. The synchronized slides that accompany this call can be found on our website in the Investors section.

On the call today are Gary Heminger, President and CEO; Garry Peiffer, Executive Vice President of Corporate Planning and Investor and Government Relations; Don Templin, Senior Vice President and Chief Financial Officer; Rich Bedell, Senior Vice President of Refining; and Mike Palmer, Senior Vice President of Supply, Distribution and Planning.

If you look at Slide 2, please read the Safe Harbor statement that we have provided. It's a reminder that we will be making forward-looking statements during the presentation and also during the question-and-answer session today. Actual results may differ materially from what we expect today, and factors that could cause actual results to differ are included here as well as in our filings with the Securities and Exchange Commission.

And now I'll turn the call over to Gary Heminger for opening remarks.

Gary R. Heminger

Thank you, Pam, and good morning to everyone and thank you for joining us. I know that many of you that are listening today are from the Northeast. And just let us mention that we are thinking of you, and we wish you the very best and to be safe in this very difficult and challenging time.

We posted another strong financial and operational performance in the third quarter, with adjusted net income of $1.1 billion, which is comparable with our results for the third quarter last year. These positive financial results are primarily attributed to our Refining & Marketing segment, where we were able to capture benefits from favorable market conditions. In addition, we believe our focus on safe and efficient operations allowed us to utilize our assets at optimal levels and provide us a strategic advantage.

Upgrades to our Detroit refinery are nearly complete and remain on-budget and on-schedule. Shortly after Labor Day, we began a 70-day planned turnaround to tie in the new units. The turnaround has gone according to plan, and we are in the early stages of startup and gradually ramping up operations with the upgraded and expanded refinery online later this month. When completed, these upgrades should allow us to lower our feedstock cost and capture incremental value from a heavier crude oil slate. Once the refinery is running at its new capacity of 120,000 barrels per day, the plant's heavy crude oil processing capacity will increase from 20,000 to 100,000 barrels per day. As we've shared in the past, using the LLS to WCS spread of 2006 to 2010 and for 2011, respectively, the incremental EBITDA from this project could be $200 million to $350 million per year.

Over the past few weeks, we announced 2 significant corporate developments. On October 8, we announced we had signed an agreement to acquire BP's Texas City Texas refinery and relay the logistics and marketing assets. The refinery is one of the largest and most complex refineries in the U.S., with a Nelson Complexity Index of 15.3. This is unique opportunity to acquire world-scale refining assets at an attractive price.

In addition to the 451,000 barrel per calendar day refinery, the agreement also includes 1,040 megawatt cogen facility, 4 terminals, 3 intrastate NGL pipelines, contracts representing 1,200 brand locations and 50,000 barrels per day of assigned shipper history on Colonial Pipeline. This refinery and related assets will strategically complement our existing business and provide an opportunity to create additional long-term value for our shareholders. We expect to close the transaction early in 2013.

Also, early in October, our 80,000 barrel per day Texas City refinery was certified as a Voluntary Protection Program Star site by the Occupational Safety and Health Administration. I'm proud of our employees' commitment to safety and operational excellence, and I commend all of our Texas City refinery personnel on this significant achievement. I firmly believe that our commitment to safety is one of the strongest components of our operational advantage in this very challenging industry.

And last week, we announced the completion of an Initial Public Offering of MPLX. We intend for MPLX to be MPC's primary vehicle for ownership, operation and growth of our midstream business. The common units are listed on the New York Stock Exchange under the ticker symbol MPLX. Garry Peiffer is President of MPLX, and I've asked Garry to cover this in more detail in just a few minutes. We believe the formation and Initial Public Offering of MPLX has the potential to unlock shareholder value and improve our ability to participate in the ongoing expansion of logistics to transport the rapidly growing North American crude and natural gas production to consuming markets.

Turning to demand. We estimate that U.S. gasoline demand was down about 0.3% and distillate demand was down 3% in the third quarter 2012 compared to a year ago. We expect U.S. gasoline demand to remain soft through the remainder of 2012 and expect total year 2012 demand to be down approximately 0.2%. Full year distillate demand is expected to decline about 1.9% in 2012.

Looking ahead into 2013, we expect U.S. gasoline demand to be flat and distillate demand to be up about 3.7%. In addition, we expect export opportunities to remain attractive in 2013. Our distillate exports rose to 112,000 barrels per day during the third quarter compared to 73,000 barrels per day in the same quarter last year.

Strong cash flow from operations provides a means for organic investments in the business, to make selective acquisitions like the BP transaction and to return capital to shareholders. Since becoming an independent public company in 2011 -- excuse me, in July of 2011, we have returned over $1.2 billion to shareholders through a combination of a 75% increase in our base dividend and share repurchases. We also have $1.15 billion remaining under the current board authorization for the repurchase of shares.

Our mission continues to be value creation for our investors, incorporating a balance between internal and external investment and return of capital to shareholders.

Now I will ask Garry Peiffer to provide a little more color on the recently-completed IPO of MPLX.

Garry L. Peiffer

Thanks, Gary. As Gary just said, MPC intends for MPLX to be its primary vehicle to own, operate and grow its midstream business. MPLX's initial assets include a 51% equity interest in a network of FERC-regulated common carrier crude oil and product pipeline assets located in the Midwest and Gulf Coast regions, and a 100% interest in a recently-constructed 1 million barrel butane cavern located in West Virginia near our Catlettsburg, Kentucky refinery. This equity infrastructure gives MPC the opportunity to offer additional equity interests in these assets to MPLX over time. This provides MPLX distribution growth opportunities in addition to the growth we expect from increased revenues, organic investments, acquisitions and drop downs of other midstream assets retained by MPC.

We announced on October 26 that we sold 19.9 million common units or 26.4% of MPLX in the IPO. MPC, through its subsidiaries, holds a 2% general partnership interest and the remaining limited partner interest in MPLX. These percentages reflect the fact that the underwriters did exercise in full their option to purchase an additional 15% of the common units offered in the IPO. We priced the common units at $22 per common unit, which was above the initial offering range of $19 to $21.

The initial annualized minimum quarterly distribution on these units will be $1.05, which equates to a yield of 4.77%. This annualized yield represents the lowest yield ever for the Initial Public Offering of an MLP. We believe this record low IPO yield reflects the attractive initial assets and growth potential of MPLX. IPO proceeds totaled $438 million, of which MPC received $203 million. The balance was retained by MPLX to cover fees and expenses of the initial public offering and to pre-fund $192 million of organic growth projects.

At MPC, our goal is to make every business we operate best-in-class, and we are focused on making MPLX a best-in-class MLP. Highlighted on this next chart are the 4 primary pillars that should allow MPLX to accomplish this objective. MPLX's initial assets will be fee-based businesses and will primarily consist of one of the largest pipeline systems in the U.S. based on the volume of crude and refined products delivered. The initial MPLX asset base has attractive organic growth prospects, anchored by increasing FERC-based tariffs and stable throughput volumes.

To foster this organic growth, MPLX has retained $192 million of IPO proceeds to pre-fund identified organic capital spending over the next 2 years. Additionally, our assets are located in the heart of the Midwest infrastructure buildout, where we believe there are significant additional potential organic investment opportunities to grow MPLX.

MPC has a large portfolio of MLP qualifying assets, including the 49% retained interest in MPLX's initial pipeline assets that can be offered to MPLX over time to help us achieve our desired annual distribution growth rate. MPLX also has -- also will have significant third-party opportunities that can evaluate independently or in conjunction with MPC. A recent example of these opportunities is the Letter of Intent that MPC signed with Harvest Pipeline Company to jointly develop infrastructure that will facilitate transportation on the Ohio River of hydrocarbon liquids production from the Utica Shale in Eastern Ohio and Western Pennsylvania. At MPC, we pride ourselves on maintaining our assets in a first-class manner, and we'll continue to do so at MPLX.

We have studied the MPL universe for many years, and we believe we know what it takes to position MPLX to be a best-in-class MLP as demonstrated by the success of MPLX's initial public offering.

Now I'll turn over the call to Don Templin to provide a more detailed update on the financial results for the third quarter.

Donald C. Templin

Thanks, Garry. Slide 6 provides net income both on an absolute and per-share basis. Our third quarter 2012 adjusted net income of $1.1 billion is comparable to the $1.1 billion we earned in the third quarter of 2011. Adjusted earnings per share was $3.31 for the third quarter 2012 compared to $3.16 during the same period last year. The 2012 third quarter earnings per share data reflects the impact of shares acquired in our share repurchase program.

The waterfall chart on Slide 7 shows by segment the change in adjusted net income from the third quarter of 2011 to the third quarter of 2012. All 3 segments had comparable results to the same period last year.

As shown on Slide 8, Refining & Marketing segment income from operations was $1.69 billion in the third quarter of 2012 compared with $1.71 billion in the third quarter of 2011. Although the segment results were comparable, the drivers of those results differed from quarter-to-quarter. In explaining the key components of the Refining & Marketing gross margin, I will refer to the changes in the market indicators applied to MPC actual volumes to arrive at the quarter-over-quarter variances.

First, the blended LLS 6-3-2-1 crack spread was $5.83 per barrel higher in the third quarter of 2012 than the third quarter 2011, resulting in an estimated favorable variance of $709 million. The Chicago crack spread was $6.44 per barrel higher than the third quarter 2011, and the Gulf Coast crack spread was also higher, up $5.19 per barrel.

The sweet/sour differential increased slightly, up $0.31 per barrel over the third quarter last year and resulted in an estimated favorable variance of $90 million. The LLS/WTI differential was $17.21 for the third quarter 2012 compared with $22.92 for the third quarter of 2011. This decrease in the differential resulted in an estimated $193 million unfavorable gross margin variance between the 2 quarters.

The first 3 market indicators I discussed are calculated by referenced to an LLS prompt price. Rapid changes in crude prices can cause significant differences between the LLS prompt prices embedded in the market indicators and the actual amount we pay. On average, the delivered LLS crude cost was almost $2 per barrel higher than the prompt LLS price during the third quarter of 2012 when compared to the third quarter of 2011. This accounted for an estimated unfavorable variance of $59 million.

Direct operating cost had an unfavorable quarter-over-quarter effect of $118 million, primarily due to higher planned turnaround costs in the third quarter 2012 compared with the third quarter 2011. As you know, we completed the Robinson turnaround in July and began the Detroit turnaround in early September.

The other gross margin column captures a number of other factors that need to be considered when reconciling the market-based metrics that changed in our gross margin. There are 2 primary factors affecting the $428 million unfavorable variance. First, as a result of changing crude oil differentials, our actual crude acquisition prices were higher than the market indicators due to differences in the mix of the crudes acquired versus the crudes used in those market indicators. The second factor was lower wholesale price realizations compared to the market indicators, primarily due to rising product prices.

On the next 2 slides, we provide earnings walks for each of our other operating segments. On Slide 9, Speedway's income from operations was $76 million in the third quarter of 2012 compared with $85 million in the third quarter of 2011. Speedway's light product gross margin was $12 million lower in the third quarter of 2012 compared with the third quarter of 2011. The decrease was primarily due to a nearly $0.016 per gallon lower gross margin for the third quarter 2012 compared with the similar period in 2011.

Merchandise margin was $217 million in the third quarter 2012 compared with $200 million during the same period last year. This $17 million increase was primarily due to an increase in the number of stores compared to the same period last year. Same-store gasoline sales volumes decreased 3.9% in the third quarter 2012 compared with the 2011 third quarter. Speedway's October same-store gasoline volumes were up approximately 1%, which puts their same-store sales down about 1% year-to-date.

Same-store merchandise sales decreased 0.8% in the third quarter 2012 compared with the 2011 third quarter. However, same-store merchandise sales, excluding tobacco, increased 4.1% compared to the same quarter last year, which had a 7.2% same-store increase over 2010.

Slide 10 shows changes in our Pipeline Transportation segment income. Income from operations was $52 million in the third quarter of 2012 compared with $56 million in the third quarter of 2011. This decrease was primarily attributable to a decrease in earnings from pipeline affiliates.

The chart on Slide 11 provides an analysis of cash flows for the third quarter of 2012. At September 30, 2012, our cash balance was nearly $3.4 billion. Operating cash flow before changes in working capital was $1.3 billion. The working capital benefit of $513 million noted on the slide primarily relates to an increase in payables and a decrease in inventory, partially offset by an increase in accounts receivables since June 30. Capital expenditures and acquisitions during the quarter were $358 million, including amounts related to our Detroit heavy oil refinery project.

Slide 12 shows that at the end of the third quarter, we had almost $3.4 billion of cash and approximately $3.3 billion of debt. With EBITDA of almost $5 billion during the last 12 months, we continue to be in a very manageable debt position, with leverage of 0.7x EBITDA and a debt-to-total capital ratio of 23%.

Turning to Slide 13. During the last 12 months, we generated almost $3.1 billion in cash from operations and nearly $1.6 billion of free cash flow. Consistent with our commitment to return capital to shareholders, we have distributed 77% of our free cash flow in the form of dividends and share repurchases during this past year. And we are committed to being a leader in our peer group in terms of total shareholder return going forward.

Slide 14 provides outlook information on key operating metrics for MPC for the fourth quarter of 2012. For comparative purposes, those same metrics for the fourth quarter 2011 are also shown.

Now I will turn the call back to Pam Beall.

Pamela K. M. Beall

Thank you, Don. Before we open the call to questions, I want to remind you that we remain in a quiet period for 25 days following the completion of the Initial Public Offering. So our comments will be limited with respect to discussions about the future potential

[Audio Gap]

I do want you to know that we will be holding separate conference calls for MPLX beginning with the fourth quarter 2012 results that will be reported early in 2013.

We open the call for your questions, and we ask that you limit yourself to one question plus a follow-up. And of course, you may re-prompt for additional questions as time permits. And with that, we're going to open up the call to your questions. Sandra?

Question-and-Answer Session

Operator

[Operator Instructions] And the first question is from Edward Westlake from Crédit Suisse.

Edward Westlake - Crédit Suisse AG, Research Division

I'm going to try anyway on the logistics side. Just on the EBITDA in the Refining & Marketing segment at MPC, not obviously MPLX, I mean, are you able to give a rough range of that now that MPLX is done?

Garry L. Peiffer

This is Garry Peiffer. We're basically limited to what we disclosed in the prospectus, the S-1, which in the S-1, essentially we disclosed the physical characteristics of those assets but not the EBITDA, which at this point we haven't done a calculation on a GAAP basis of. So the answer to that question is no. But as you know, and as I said, the one asset we do have that has obvious EBITDA associated with it is the 49% interest in the MPLX's pipeline assets we're retaining. So that had an EBITDA of roughly $90 million in our pro forma 2013 results. So that is the one fairly obvious indicator we have of a drop-down type of asset.

Edward Westlake - Crédit Suisse AG, Research Division

Okay. Great. And then switching to Texas City. I believe on the call on Columbus Day, you weren't able to talk about operating costs I think because you hadn't had a chance to sit down with the regulators. Are you able to sort of give a range of operating costs for Texas City asset?

Gary R. Heminger

No, Ed. We have not been able to do that yet. Of course, we have our forecasts internally, but we have not sat down with the regulators nor through our CA can we make that available yet. But as we go through the process here of preparing to complete this transaction, we'll be meeting with the regulators later in the quarter.

Operator

And the next question is from Chi Chow from Macquarie.

Chi Chow - Macquarie Research

Gary, one of your remarks in your opening comments caught my attention. You mentioned that you expect distillate demand growth to be up 3.7% next year. Is that correct?

Gary R. Heminger

Yes, sir.

Chi Chow - Macquarie Research

What's your underlying assumption there?

Gary R. Heminger

Well, as we look at the total demand so far this year -- and we're up against a period -- while we were down here this quarter, if you look at last year, it appears the economy had picked up a little bit then last year. So we were up against a strong quarter in 2011. But as we look at over-the-road diesel, we're looking at the portal movements, we're looking at the over-the-road 18-wheel transportation movements as well as the exports to Latin America, Europe, South America, we're expecting to see that type of growth across our system.

Chi Chow - Macquarie Research

Okay. So this 3.7% is your demand from your system?

Gary R. Heminger

Well, that's the U.S. demand, but that's also we expect to play in that basically in line.

Chi Chow - Macquarie Research

Okay. So exports are on top of this 3.7%?

Gary R. Heminger

No. Excuse me a second. Garry is telling me something different.

Garry L. Peiffer

Well, yes, this is Garry Peiffer. That is just our estimate of what U.S. demand growth will be in 2013. And really, it's offsetting the dramatic loss this year of almost -- we're figuring probably 2% to 2.5%. So when you combine the negative effect this year with the positive net effect next year, it's a fairly small gain overall.

Chi Chow - Macquarie Research

Right. Okay. I guess my second question, I'll just keep it more macro, what is your outlook for non-Canadian light/heavy differentials? They seem to be widening out a bit here lately.

Gary R. Heminger

I'll let Mike Palmer discuss this.

C. Michael Palmer

Yes, the non-Canadian light/heavy differentials?

Chi Chow - Macquarie Research

Yes, so like the Maya spread certainly looks to be widening out. What's your outlook into 2013 on light/heavy spreads?

C. Michael Palmer

Well, I guess when we look at light/heavy, to be honest, I mean, the most important thing that we look at is really on the Canadian side because that's where most of the heavy crude is going to come from. And we -- you've seen those spreads that have widened out. We expect that certainly into the first and second quarter, that those spreads will remain wide. I think if you look at an LLS/Mars differential, those kinds of spreads ought to be very related to whatever the heavy product market does. It should follow closely.

Operator

And the next question is from Arjun Murti from Goldman Sachs.

Arjun N. Murti - Goldman Sachs Group Inc., Research Division

Just wanted to make sure I understood how you were thinking about the stock buyback. You did the, I think, accelerated repurchase at the beginning of the year. You still have the $1.15 billion. Now that MPLX will soon be done and you'll be at a quiet period, is it meant to be opportunistic going forward but stock price is weak? If you can just provide any color, that'd be great.

Donald C. Templin

Arjun, this is Don. I think it's probably not appropriate for me to comment on sort of our specific plans. But I will say that over the last year, I think we've had a really strong track record of returning capital to shareholders. And I think you should expect that, that will continue into the future. We have a discussion with our board regularly about the most appropriate ways to return capital to shareholders, and they are committed as we are to doing that regularly.

Arjun N. Murti - Goldman Sachs Group Inc., Research Division

Got it. Any update on how you're thinking about 2013 CapEx, I guess either with or without Texas City, however you want to phrase it?

Donald C. Templin

We have not put out a 2013 CapEx number yet, Arjun. I would say that from a -- as we're thinking about a MPC excluding BP Texas City, we would probably be in the range that we were 2011 and 2012. And then we're working through, obviously, the budget related to the acquisition itself. So we're more likely to be able to give that color in a couple of months' time.

Operator

And the next question is from Evan Calio from Morgan Stanley.

Evan Calio - Morgan Stanley, Research Division

On MPLX, and it's not related to what you can't talk about. But as the parent drop-down provide you another lever for cash flow to MPC in addition to the $3.4 billion of cash in the balance sheet and the $500 million undrawn in the revolver at MPLX is gun powder to fund future drops, I mean, can you discuss how this additional potential source of cash impacts your return strategy? I mean, are you more or less inclined to use a special dividend that could be associated with future drop-downs? Or how are you incorporating that?

Garry L. Peiffer

Yes, this is Garry Peiffer. I think it's hopefully fairly obvious, and this is what we stated in the prospectus of that, we didn't essentially [ph] do this Initial Public Offering as a means to generate cash flow. Obviously, we don't have a balance sheet that needs repairing or anything like that. So our primary objective by the creation of MPLX is to, as we stated, own and operate and really grow our downstream -- our midstream assets. So our primary focus is on growing MPLX. And I think our dividend strategy, and Don can comment as well, isn't changing. We're looking at dividends like we always have, and this is just another part of the levers that we have to grow our cash at the MPC level as well.

Evan Calio - Morgan Stanley, Research Division

Okay. That's great. And then maybe a follow-up on -- I know MPC had something like $230 million in CapEx that was Pipeline and Transportation for 2012. I mean, has that changed with this new vehicle? I mean, should we expect spending on organic midstream projects at both levels or that would fund potential drops? Or would it -- has that shifted to the MPLX with the -- leaving some of the cash proceeds at that level?

Garry L. Peiffer

Yes, and this is Garry again. It's a little bit of both. As we -- as I stated, we're leaving $192 million of the IPO proceeds within MPLX to really fund some organic projects we've identified at this point, primarily related to 2013 -- excuse me, 2014. But we've also been doing things at the MPC level, like I mentioned, with the Harvest Pipeline to expand some of our transportation, logistical assets in the Utica area. So it's going to really depend upon what is the profile of the project in terms of EBITDA growth in the future. Because the thing we did, obviously, with the MLP assets we contributed originally to the MPLX was these are fee-based, very stable, very predictable type of assets that we want to continue to grow MPLX using that same profile if possible.

Operator

And the next question is from Jeff Dietert from Simmons.

Jeffrey A. Dietert - Simmons & Company International, Research Division

I had a question regarding Canadian heavy. Canadian heavy discounts have recently widened from about $15 a barrel at the middle of October to now currently $30 a barrel under WTI. So the Canadian heavy discounts are widening substantially right in front of the Detroit upgrader completion. So it looks as though you should be off to a strong start with profitability at Detroit. Mike, could you comment on what's driving those wide differentials for the Canadian heavies in the current market?

C. Michael Palmer

Yes, Jeff, I'd be happy to. I guess there's probably 3 things that I would comment on. First of all, I think that the widening, the severe widening of the differentials started when Keystone discovered an anomaly in their pipeline. I think it was in the Missouri area. And they had to shut down for maintenance, and they were down for about 5 days. So when they're operating a little over 500,000 barrels a day, they backed 2.5 million barrels of primarily heavy crude back into the market. And the differentials started widening out considerably at that point. Of course, that happened just recently, and we're at a point where we're ending the asphalt season. And historically, the heavy dis in Canada has started to widen up during that period anyway. And then there have been some upgrader problems of late as well. So with the particular problem that I'm thinking of, it's going to reduce the amount of light synthetic available, but it's going to increase the amount of heavy crude that they'll be blending and making available in the market. So as usual, there's a number of issues that are going on. But we would expect that these wider differentials are normal, now that we're out of the asphalt season, will continue.

Jeffrey A. Dietert - Simmons & Company International, Research Division

If I could ask a quick question on Slide 8. It's a very helpful slide. On the other gross margin, you talked about the $428 million negative impact and the 2 factors: actual crude prices and wholesale prices rising. Could you break down those 2 factors? And what percentage of the $428 million was from each of those 2 factors?

Garry L. Peiffer

Jeff, we've not disclosed -- I guess it's probably appropriate to follow up maybe on the details with Beth after the call, I guess. In terms of kind of the 2 driving factors, in our -- as an example, in our sweet/sour differential calculation, there's an assumed sour basket in there. And when our actual crudes that we acquire differ from that assumed sour basket, we have a mix differential that drives that. And same thing in the 6-3-2-1 crack spread, there's a spot, there's an assumed spot product price. And when our wholesale realizations differ from those assumed spot product prices, we also have a differential. So probably best for Beth to walk you through kind of the details on that offline.

Operator

And the next question is from Doug Terreson from ISI Group.

Douglas Terreson - ISI Group Inc., Research Division

Some of your competitors have been fairly vocal about the changing dynamic between the environmental regulator at the federal and also at the state level in Texas during the past couple of years. And while this obviously may change, I just wanted to get your perspective on this item and whether you even consider it an issue as it relates to future permitting. And along these lines, BP invested significantly in Port Arthur. And it may be too early to know, but when you did your economic assessment of the plant, did you envision meaningful investment anyway? So those are my 2 questions.

Gary R. Heminger

Say, Doug, on the permitting process, I must admit that we have been, I think, very pleased our permitting if we go back to Garyville and Detroit. And then some additional permitting we've done, we have in the areas of the country in which we operate and the transparency in which we operate, I think we've been very successful in being able to gain the permits in a timely manner. So I do understand some of the issues that some of the competitors have discussed, possibly on the West Coast and those issues. But the markets, again, in which we operate, we've been very successful. Now you asked on when we're looking at -- when we were looking at BP, I didn't catch the last part of your question.

Douglas Terreson - ISI Group Inc., Research Division

Yes, so the question was, so when you were assessing the economics of the plant, I mean obviously, they've spent a ton on this refinery over the years. Did you -- do you guys really envision a lot of investment that would make permitting anyway?

Gary R. Heminger

I'm sorry. I'm sorry. I missed the permitting word. No. In fact, the majority of the investment going forward is going to be to complete work that already is what's in a either a consent decree or some other agreements that have been made in that plant. So there should not be any incremental permits that are required. And Rich Bedell is here with me. Rich can chime in. Rich, are you aware of any big permits we need?

Richard D. Bedell

No. I mean, we've looked at that, and we're in good shape. I mean, they're operating with their permits right now and those will be assigned over, we'll transfer those permits, operating permits, over to Marathon. In fact, that process is ongoing right now.

Operator

And the next question is from Faisel Khan from Citigroup.

Faisel Khan - Citigroup Inc, Research Division

A couple of questions. So the first one is, if you could elaborate a little bit more on the same-store sales for the quarter down 3.9% I think. What exactly caused that quarterly drop? Is it timing or are we -- was there something more extreme in the quarter that caused that?

Gary R. Heminger

Faisel, I think it's all price. If you look at the retail price this year versus the same time last year, if you look at the last 3 or 4 years how that retail price and the -- really the discretionary demand, how it changed the different retail price levels, I would say that, that price level now seems to be $3.50. Once you get over $3.50, the discretionary demand seems to drop. We're seeing right now here in the month of October that demand has picked up because we got below the $3.50 range. So I would say it's all price level. And as you know, over the summer, early fall, we got up close to $4, and that's really been the determining factor.

Faisel Khan - Citigroup Inc, Research Division

Okay. And then my follow-up question is on the deal with the Harvest Pipeline Company. Are you now more confident that the oil volumes in the Eagle Ford are picking up, and there's -- you're going to see material growth over the next 12 to 18 months? Or is this more of an option in case things accelerate?

Gary R. Heminger

What we have always said, Faisel, is that we want to make sure that we are in position to have first mover advantage. The Utica area is still under the front end of trying to determine what the flow properties are going to be and how that area is going to be produced. Again, it is just -- it is ramping up slowly. So we have set up the option in order to be able to, if we want and working with Harvest, to be able to develop this way to offload crude. And again, we believe our 2 refineries, Canton, Ohio, and then Catlettsburg, probably provide the best 2 transportation alternatives in the marketplace. So therefore, we want to be out front in determining what the best options are going forward.

Operator

And the next question is from Roger Read from Wells Fargo.

Roger D. Read - Wells Fargo Securities, LLC, Research Division

I guess I'd like to follow up given your commentary earlier on the distillate or the diesel demand side, what can you do inside your facilities? I mean, I guess we could ask it 2 ways, both excluding Texas City and then your expectations once you have that inside your operations in terms of taking advantage of higher diesel against flat gasoline demand. In other words, what can you do on the yield side, throughput side, et cetera?

Gary R. Heminger

Let's let Rich, who runs our Refining, talk about this.

Richard D. Bedell

Yes, normally, what we're talking there you're swinging maybe about 5% of your output you can swing from gasoline and diesel on those lines.

Gary R. Heminger

And recall, Roger, when we built Garyville, our strategy was to, unlike most refineries in the U.S., to make this a much heavier output of diesel -- around 50% is gasoline, 50% is diesel. We've been able to outperform on the capacity throughput from what our initial design was, therefore make some additional diesel. And then also, we've had some projects in the budget here in 2012 and '13 that we're increasing some of our throughput. Let me ask Rich to go a little more into detail, your increase out of the cat and the hydrocracker at Garyville.

Richard D. Bedell

At Garyville, the increase in...

Gary R. Heminger

Not the absolute, but what the projects that you have going on.

Richard D. Bedell

Oh, okay. Sure. I will. Certainly, the hydrocracker, and we've also talked about the expansion of the hydrocracker project there and the expansion of the cat cracker that we did, both those bring more distillate stocks out. So we've got projects there as well as Catlettsburg for recovering more distillate and gas oil out of our existing crude units. So all those are projects. And the other one is the Robinson. We've announced that we're -- we have a hydrocracker project there which will shift the yields from gasoline to more towards distillate.

Roger D. Read - Wells Fargo Securities, LLC, Research Division

Okay. So as we look at '13, you should be able to generate a, let's say, meaningfully -- statistically meaningful volume of diesel to hit that growth that's going to be out there, that you expect to be out there?

Gary R. Heminger

Those projects are more '14, '15.

Roger D. Read - Wells Fargo Securities, LLC, Research Division

Okay. So what we're looking at in '13 should be very similar to '12?

Gary R. Heminger

I think that's a fair assumption, yes.

Roger D. Read - Wells Fargo Securities, LLC, Research Division

Okay. So even with margins already favoring distillate, there's not a whole lot that's -- within your operations that would necessarily change?

Gary R. Heminger

Correct.

Roger D. Read - Wells Fargo Securities, LLC, Research Division

Okay. And then can you give any comments at all about Texas City, kind of the expectation or how maybe it would compare to your operations, higher, lower, in that gasoline-diesel kind of yield?

Gary R. Heminger

The Texas City refinery is more on the lower diesel distillate yield, probably in the low 30% type number. And it has a much larger petrochemical output. It has a very large aromatics, para-xylene and those sort of yields. So it is actually, like I say, low 30% type distillate yields. It's a combination of diesel and jet fuel.

Operator

And the next question is from Eli Bauman from Barclays.

Eli Bauman - Barclays Capital, Research Division

It's Eli for Paul. I wanted to quickly see if I could get the standard balance sheet data, the working capital, market value of inventory in excess of book and long-term debt?

Donald C. Templin

Sure. Eli, this is Don. Working capital is $4.2 billion, current assets were $12.5 billion, and current liabilities were $8.3 billion. The amount by which the fair market value of inventory exceeds our book inventory is about $6.2 billion.

Eli Bauman - Barclays Capital, Research Division

Okay. And then the long-term debt, please?

Donald C. Templin

$3.3 billion.

Eli Bauman - Barclays Capital, Research Division

$3.3 billion. Okay. And then finally, you guys have been really consistent on returning cash to shareholders. But just wanted to see if I could get specifically on the regular dividends, more color about how management and the board thinks about timing and size of increases.

Donald C. Templin

Well, I guess we have said that we think having a very strong base dividend is really important. I mean it's important to management and the board, and we know it's important to our investors. So we will continue, and we have a regular discussion with our board at least quarterly about base dividend. We did increase it 40% just 1 quarter ago, and so we will continue to evaluate it every quarter and have meaningful discussion with our board about it. I mean, we think that's the sort of the base around which we target return on capital. So we always want to have a very strong base dividend.

Operator

We have a follow-up question from Edward Westlake from Crédit Suisse.

Edward Westlake - Crédit Suisse AG, Research Division

This is just around disclosure. I guess post-Texas City, are there any plans to sort of break out the Gulf from the MidCon region? I think that would clearly be helpful for us, although it does involve a bit more work.

Gary R. Heminger

Ed, it's too early for us to decide until we get this transaction under our belt. But I would expect that we will not be breaking things out in that micro of a level going forward.

Edward Westlake - Crédit Suisse AG, Research Division

And then on Texas City, how concerned are you that on the aromatics and I guess propylene component of the output of the refinery, that as you get more and more sort of cracking based off gas put into the Gulf Coast, I mean, should we be concerned about some margin impacts on that part of the barrel?

Gary R. Heminger

Well actually, if the ethylene crackers go to more of an ethane feedstock, their propylene yields decline considerably. So you look at the overall propylene balance as these crackers go to lighter and lighter feedstocks, the propylene market -- the propylene supply declines. So I think that the propylene market will be fine.

Operator

We have another follow-up question from Evan Calio from Morgan Stanley.

Evan Calio - Morgan Stanley, Research Division

Your throughput guidance on Slide 14 is a bit higher. I mean, can you walk me through that? Are you guys running higher Garyville volumes in addition to Detroit coming back up? Or is there kind of something else driving that throughput guide there?

Gary R. Heminger

I guess, I don't think we're running any -- I mean, I'm not sure I can point to anything specific, Evan. I mean, Garyville is running very well, and I guess our view around fourth quarter is that all of our plants will be up and running, including Detroit. The other thing is that, as you remember, Robinson was in turnaround for part of July. And so I think it's really a combination of all those factors that's driving that. I'm not sure one individual facility is making the difference.

Evan Calio - Morgan Stanley, Research Division

Okay. That's great. Just a quick one on Detroit. I mean, is WCS a good market there for what you intend to run? And do you have capacity through Enbridge, Lakehead and I guess via that new line 79? Is that where you're sourcing heavies from?

C. Michael Palmer

Yes, that's primarily where the heavies will be sourced from, on the Enbridge line. And yes, we're in very good shape from a capacity standpoint, that shouldn't be a problem. And we'll have a basket of heavy crudes that actually come into Detroit. But WCS is the typical heavy marker.

Operator

The next question is a follow-up question from Chi Chow from Macquarie.

Chi Chow - Macquarie Research

Two quick follow-ups. On DHOUP, are there any product yield changes with the new coker coming on line? And secondly, can you give us any sort of guidance on upcoming turnarounds here in the fourth quarter into 2013?

Gary R. Heminger

The yields on Detroit, I think that we have slightly more gasoline and slightly more diesel because we're raising the crude rate, but proportions are pretty close to what they are right now. And Chi, you know that we'll stay with our plan of not giving forward guidance on turnarounds.

Garry L. Peiffer

And Chi, one additional thing I thought of after your question on diesel demand. As you probably recall, although you didn't experience maybe in Denver, the East Coast had unusually warm first quarter this first year. PADD I demand was down 13%. So we're not expecting a repeat of the demand we had in 2013 -- that we had in 2012. So that is really getting more back to normal winter weather would be also a big contributor to the increase in 2013.

Chi Chow - Macquarie Research

Okay. So better comps on heating oil in the northeast.

Garry L. Peiffer

Correct.

Operator

Thank you. This concludes the question-and-answer session for today's call. I will now turn the call back over to Pam Beall for closing remarks.

Pamela K. M. Beall

Thank you, Sandra, and thanks, everyone, for joining us on the call today. Beth Hunter and I will be in the office all afternoon if you have any follow-up questions, please reach out to us, and thanks again for joining us.

Operator

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.

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