Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index

	Page
MANAGEMENT’S RESPONSIBLITIES FOR FINANCIAL STATEMENTS	93
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING	93
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	94
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
CONSOLIDATED STATEMENTS OF INCOME	96
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	97
CONSOLIDATED BALANCE SHEETS	98
CONSOLIDATED STATEMENTS OF CASH FLOWS	99
CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTEREST	100
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	101
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)	151

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		/s/ Timothy T. Griffith		/s/ John J. Quaid
Gary R. Heminger Chairman of the Board and Chief Executive Officer		Timothy T. Griffith Senior Vice President and Chief Financial Officer		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) 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, 2018.

On October 1, 2018, the Company completed its acquisition of Andeavor. Accordingly, the acquired assets and liabilities of Andeavor are included in our consolidated balance sheet as of December 31, 2018 and the results of its operations and cash flows are reported in our consolidated statements of income and cash flows from October 1, 2018 through December 31, 2018. We have elected to exclude Andeavor from the Company’s assessment of internal control over financial reporting as of December 31, 2018. Andeavor represented approximately 27% of consolidated total assets as of December 31, 2018 and 12% of total revenues and other income for the year ended December 31, 2018.

The effectiveness of MPC’s internal control over financial reporting as of December 31, 2018 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		/s/ Timothy T. Griffith
Gary R. Heminger Chairman of the Board and Chief Executive Officer		Timothy T. Griffith Senior Vice President and Chief Financial Officer

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Marathon Petroleum Corporation

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Marathon Petroleum Corporation and its subsidiaries (the “Company”) as of December 31, 2018 and 2017, and the related consolidated statements of income, of comprehensive income, of equity and redeemable noncontrolling interest, and of cash flows for each of the three years in the period ended December 31, 2018, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 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, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated 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 the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. 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.

As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Andeavor from its assessment of internal control over financial reporting as of December 31, 2018 because it was acquired by the Company in a purchase business combination during 2018. We have also excluded Andeavor from our audit of internal control over financial reporting. Andeavor is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent 27% and 12%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2018.

Definition and Limitations of Internal Control over Financial Reporting

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 limitations, 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.

/s/PricewaterhouseCoopers LLP

Toledo, Ohio

February 28, 2019

We have served as the Company’s auditor since 2010.

MARATHON PETROLEUM CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share data)	2018				2017				2016
Revenues and other income:
Sales and other operating revenues(a)	$	95,750			$	74,104			$	63,277
Sales to related parties	754				629				62
Income (loss) from equity method investments	373				306				(185		)
Net gain on disposal of assets	23				10				32
Other income	202				320				178
Total revenues and other income	97,102				75,369				63,364
Costs and expenses:
Cost of revenues (excludes items below)(a)	85,456				66,519				56,676
Purchases from related parties	610				570				509
Inventory market valuation adjustment	—				—				(370		)
Impairment expense	—				—				130
Depreciation and amortization	2,490				2,114				2,001
Selling, general and administrative expenses	2,418				1,694				1,597
Other taxes	557				454				435
Total costs and expenses	91,531				71,351				60,978
Income from operations	5,571				4,018				2,386
Net interest and other financial costs	1,003				674				564
Income before income taxes	4,568				3,344				1,822
(Benefit) provision for income taxes	962				(460		)		609
Net income	3,606				3,804				1,213
Less net income (loss) attributable to:
Redeemable noncontrolling interest	75				65				41
Noncontrolling interests	751				307				(2		)
Net income attributable to MPC	$	2,780			$	3,432			$	1,174
Per Share Data (See Note 8)
Basic:
Net income attributable to MPC per share	$	5.36			$	6.76			$	2.22
Weighted average shares outstanding	518				507				528
Diluted:
Net income attributable to MPC per share	$	5.28			$	6.70			$	2.21
Weighted average shares outstanding	526				512				530

(a)	The 2018 period reflects an election to present certain taxes on a net basis concurrent with our adoption of ASU 2014-09, Revenue - Revenue from Contracts with Customers (“ASC 606”). See Notes 2 and 3 for further information.

The accompanying notes are an integral part of these consolidated financial statements.

MARATHON PETROLEUM CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)	2018				2017				2016
Net income	$	3,606			$	3,804			$	1,213
Other comprehensive income (loss):
Defined benefit postretirement and post-employment plans:
Actuarial changes, net of tax of $14, $17 and $69, respectively	75				29				115
Prior service costs, net of tax of $12, ($16) and ($18), respectively	8				(26		)		(31		)
Other, net of tax of $1, $0 and $0, respectively	4				—				—
Other comprehensive income	87				3				84
Comprehensive income	3,693				3,807				1,297
Less comprehensive income (loss) attributable to:
Redeemable noncontrolling interest	75				65				41
Noncontrolling interests	751				307				(2		)
Comprehensive income attributable to MPC	$	2,867			$	3,435			$	1,258

The accompanying notes are an integral part of these consolidated financial statements.

MARATHON PETROLEUM CORPORATION

CONSOLIDATED BALANCE SHEETS

	December 31,
(In millions, except share data)	2018				2017
Assets
Current assets:
Cash and cash equivalents	$	1,687			$	3,011
Receivables, less allowance for doubtful accounts of $9 and $11, respectively	5,853				4,695
Inventories	9,837				5,550
Other current assets	646				145
Total current assets	18,023				13,401
Equity method investments	5,898				4,787
Property, plant and equipment, net	45,058				26,443
Goodwill	20,184				3,586
Other noncurrent assets	3,777				830
Total assets	$	92,940			$	49,047
Liabilities
Current liabilities:
Accounts payable	$	9,366			$	8,297
Payroll and benefits payable	1,152				591
Accrued taxes	1,446				670
Debt due within one year	544				624
Other current liabilities	708				296
Total current liabilities	13,216				10,478
Long-term debt	26,980				12,322
Deferred income taxes	4,864				2,654
Defined benefit postretirement plan obligations	1,509				1,099
Deferred credits and other liabilities	1,318				666
Total liabilities	47,887				27,219
Commitments and contingencies (see Note 25)
Redeemable noncontrolling interest	1,004				1,000
Equity
MPC stockholders’ equity:
Preferred stock, no shares issued and outstanding (par value $0.01 per share, 30 million shares authorized)	—				—
Common stock:
Issued – 975 million and 734 million shares (par value $0.01 per share, 2 billion shares authorized)	10				7
Held in treasury, at cost – 295 million and 248 million shares	(13,175		)		(9,869		)
Additional paid-in capital	33,729				11,262
Retained earnings	14,755				12,864
Accumulated other comprehensive loss	(144		)		(231		)
Total MPC stockholders’ equity	35,175				14,033
Noncontrolling interests	8,874				6,795
Total equity	44,049				20,828
Total liabilities, redeemable noncontrolling interest and equity	$	92,940			$	49,047

The accompanying notes are an integral part of these consolidated financial statements.

MARATHON PETROLEUM CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)	2018				2017				2016
Operating activities:
Net income	$	3,606			$	3,804			$	1,213
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred financing costs and debt discount	70				64				61
Impairment expense	—				—				130
Depreciation and amortization	2,490				2,114				2,001
Inventory market valuation adjustment	—				—				(370		)
Pension and other postretirement benefits, net	90				47				9
Deferred income taxes	47				(1,233		)		394
Net gain on disposal of assets	(23		)		(10		)		(32		)
(Income) loss from equity method investments	(373		)		(306		)		185
Distributions from equity method investments	519				391				317
Changes in the fair value of derivative instruments	(62		)		116				(41		)
Changes in operating assets and liabilities, net of effects of businesses acquired:
Current receivables	1,589				(1,093		)		(674		)
Inventories	931				106				(70		)
Current accounts payable and accrued liabilities	(2,798		)		2,814				985
All other, net	72				(202		)		(91		)
Net cash provided by operating activities	6,158				6,612				4,017
Investing activities:
Additions to property, plant and equipment	(3,578		)		(2,732		)		(2,892		)
Acquisitions, net of cash acquired	(3,822		)		(249		)		—
Disposal of assets	54				79				101
Investments – acquisitions, loans and contributions	(409		)		(805		)		(288		)
– redemptions, repayments and return of capital	16				62				—
All other, net	69				247				112
Net cash used in investing activities	(7,670		)		(3,398		)		(2,967		)
Financing activities:
Commercial paper – issued	—				300				1,263
– repayments	—				(300		)		(1,263		)
Long-term debt – borrowings	13,476				2,911				864
– repayments	(8,032		)		(642		)		(2,269		)
Debt issuance costs	(86		)		(33		)		(11		)
Issuance of common stock	24				46				11
Common stock repurchased	(3,287		)		(2,372		)		(197		)
Dividends paid	(954		)		(773		)		(719		)
Issuance of MPLX LP common units	—				473				776
Issuance of MPLX LP redeemable preferred units	—				—				984
Distributions to noncontrolling interests	(903		)		(694		)		(542		)
Contributions from noncontrolling interests	12				129				6
Contingent consideration payment	—				(89		)		(164		)
All other, net	(28		)		(47		)		(33		)
Net cash provided by (used in) financing activities	222				(1,091		)		(1,294		)
Net increase (decrease) in cash, cash equivalents and restricted cash	(1,290		)		2,123				(244		)
Cash, cash equivalents and restricted cash at beginning of period	3,015				892				1,136
Cash, cash equivalents and restricted cash at end of period	$	1,725			$	3,015			$	892

The accompanying notes are an integral part of these consolidated financial statements.

MARATHON PETROLEUM CORPORATION

CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTEREST

	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
(In millions)	Shares			Amount				Shares			Amount
Balance as of December 31, 2015	729			$	7			(198	)		$	(7,275	)		$	11,071			$	9,752			$	(318	)		$	6,438			$	19,675			$	—
Net income (loss)	—			—				—			—				—				1,174				—				(2		)		1,172				41
Dividends declared on common stock ($1.36 per share)	—			—				—			—				—				(720		)		—				—				(720		)		—
Distributions to noncontrolling interests	—			—				—			—				—				—				—				(517		)		(517		)		(25		)
Contributions from noncontrolling interests	—			—				—			—				—				—				—				6				6				—
Other comprehensive income	—			—				—			—				—				—				84				—				84				—
Shares repurchased	—			—				(4	)		(197		)		—				—				—				—				(197		)		—
Stock-based compensation	2			—				(1	)		(10		)		46				—				—				6				42				—
Impact from equity transactions of MPLX	—			—				—			—				(57		)		—				—				715				658				—
Issuance of MPLX LP redeemable preferred units	—			—				—			—				—				—				—				—				—				984
Balance as of December 31, 2016	731			$	7			(203	)		$	(7,482	)		$	11,060			$	10,206			$	(234	)		$	6,646			$	20,203			$	1,000
Net income	—			—				—			—				—				3,432				—				307				3,739				65
Dividends declared on common stock ($1.52 per share)	—			—				—			—				—				(774		)		—				—				(774		)		—
Distributions to noncontrolling interests	—			—				—			—				—				—				—				(629		)		(629		)		(65		)
Contributions from noncontrolling interests	—			—				—			—				—				—				—				129				129				—
Other comprehensive income	—			—				—			—				—				—				3				—				3				—
Shares repurchased	—			—				(44	)		(2,372		)		—				—				—				—				(2,372		)		—
Stock-based compensation	3			—				(1	)		(15		)		92				—				—				8				85				—
Impact from equity transactions of MPLX	—			—				—			—				110				—				—				334				444				—
Balance as of December 31, 2017	734			$	7			(248	)		$	(9,869	)		$	11,262			$	12,864			$	(231	)		$	6,795			$	20,828			$	1,000
Cumulative effect of adopting new accounting standards	—			—				—			—				—				66				—				2				68				—
Net income				—				—			—				—				2,780				—				751				3,531				75
Dividends declared on common stock ($1.84 per share)	—			—				—			—				—				(955		)		—				—				(955		)		—
Distributions to noncontrolling interests	—			—				—			—				—				—				—				(832		)		(832		)		(71		)
Contributions from noncontrolling interests	—			—				—			—				—				—				—				12				12				—
Other comprehensive income	—			—				—			—				—				—				87				—				87				—
Shares repurchased	—			—				(47	)		(3,287		)		—				—				—				—				(3,287		)		—
Stock based compensation	1			1				—			(18		)		345				—				—				14				342				—
Impact from equity transactions of MPLX & ANDX	—			—				—			—				2,357				—				—				(2,927		)		(570		)		—
Issuance of shares for Andeavor acquisition	240			2				—			(1		)		19,765				—				—				—				19,766				—
Noncontrolling interest acquired from Andeavor	—			—				—			—				—				—				—				5,059				5,059				—
Balance as of December 31, 2018	975			$	10			(295	)		$	(13,175	)		$	33,729			$	14,755			$	(144	)		$	8,874			$	44,049			$	1,004

The accompanying notes are an integral part of these consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.	DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION

Description of the Business

We are a leading, integrated, downstream energy company headquartered in Findlay, Ohio. We operate the nation's largest refining system with more than 3 million barrels per day of crude oil capacity across 16 refineries. MPC's marketing system includes branded locations across the United States, which primarily include Marathon branded outlets. We own and operate retail convenience stores across the United States. We also own the general partner and majority limited partner interests in two midstream companies, MPLX LP (“MPLX”) and Andeavor Logistics LP (“ANDX”), which own and operate crude oil and light product transportation and logistics infrastructure as well as gathering, processing, and fractionation assets.

Refer to Note 5 for further information on the Andeavor acquisition, which closed on October 1, 2018, and to Note 10 for additional information about our operations.

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.

2.	SUMMARY OF PRINCIPAL ACCOUNTING POLICIES

Principles Applied in Consolidation

These consolidated financial statements include the accounts of our majority-owned, controlled subsidiaries, MPLX and ANDX. 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, 2018, we owned 63.6 percent of the outstanding MPLX common units and 63.6 percent of the outstanding ANDX common units and 100 percent of the general partner interest for each entity. Due to our ownership of the general partner interest, we have determined that we control MPLX and ANDX and therefore we consolidate MPLX and ANDX and record a noncontrolling interest for the 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.

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.

Revenue Recognition

We recognize revenue based on consideration specified in contracts or agreements with customers when we satisfy our performance obligations by transferring control over products or services to a customer. Concurrent with our adoption of ASU 2014-09, Revenue from Contracts with Customers (“ASC 606”), we made an accounting policy election that all taxes assessed by a governmental authority that are both imposed on and concurrent with a revenue-producing transaction and collected from our customers will be recognized on a net basis within sales and other operating revenues.

The adoption of ASC 606 did not materially change our revenue recognition patterns, which are described below by reportable segment:

•	Refining & Marketing - The vast majority of our Refining & Marketing contracts contain pricing that is based on the market price for the product at the time of delivery. Our obligations to deliver product volumes are typically satisfied

and revenue is recognized when control of the product transfers to our customers. Concurrent with the transfer of control, we typically receive the right to payment for the delivered product, the customer accepts the product and the customer has significant risks and rewards of ownership of the product. Payment terms require customers to pay shortly after delivery and do not contain significant financing components.

•

Retail - Revenue is recognized when our customers receive control of the transportation fuels or merchandise. Payments from customers are received at the time sales occur in cash or by credit or debit card at our company-owned and operated retail locations and shortly after delivery for our direct dealers. Our retail operations offer a loyalty rewards program to its customers. We defer a minor portion of revenue on sales to the loyalty program participants until the participants redeem their rewards. The related contract liability, as defined in ASC 606, is not material to our financial statements.

•

Midstream - Midstream revenue transactions typically are defined by contracts under which we sell a product or provide a service. Revenues from sales of product are recognized when control of the product transfers to the customer. Revenues from sales of services are recognized over time when the performance obligation is satisfied as services are provided in a series. We have elected to use the output measure of progress to recognize revenue based on the units delivered, processed or transported. The transaction prices in our Midstream contracts often have both fixed components, related to minimum volume commitments, and variable components, which are primarily dependent on volumes. Variable consideration will generally not be estimated at contract inception as the transaction price is specifically allocable to the services provided at each period end.

Refer to Note 10 for disclosure of our revenue disaggregated by segment and product line, as well as a description of our reportable segment operations.

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. No revenues are recorded for exchange and matching buy/sell transactions as they are accounted for as exchanges of inventory. The exchange transactions are recognized at the carrying amount of the inventory transferred.

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.

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.

We mitigate credit risk with master netting agreements with 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.

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.

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 and (6) the purchase of natural gas. 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 three to 51 years. Such assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. If the sum of the expected undiscounted future cash flows from the use of the asset group and its eventual disposition is less than the carrying amount of the asset group, an impairment assessment is performed and the excess of the book value over the fair value of the asset group is recorded as an impairment loss.

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 carrying value of the reporting unit. The fair value is calculated using the expected present value of future cash flows method. Significant assumptions used in the cash flow forecasts include future net operating margins, future volumes, discount rates, and future capital requirements. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.

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 and other major maintenance 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 for additional equipment that mitigates or prevents future contamination or improves environmental safety or efficiency of the existing assets are capitalized. 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.

Our short-term asset retirement obligations were $30 million and $6 million at December 31, 2018 and 2017, respectively, which are included in other current liabilities in our consolidated balance sheets. Our long-term asset retirement obligations were $222 million and $121 million at December 31, 2018 and 2017, respectively, which are included in deferred credits and other liabilities in our consolidated balance sheets. The increase in our asset retirement obligation was mainly due to obligations recognized in connection with the purchase accounting for the Andeavor acquisition.

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.

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. Any excess or surplus of the purchase consideration when compared to the fair value of the net tangible assets acquired, if any, is 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. 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. 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 date, 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 that would have existed as of the date of the acquisition. Any adjustment that arises from information obtained that did not exist as of the date of the acquisition will be recorded in the period of the adjustment. Acquisition-related costs are expensed as incurred in connection with each business combination.

Environmental Credits and Obligations

In order to comply with certain regulations, specifically the RFS2 requirements implemented by the EPA and the cap-and-trade emission reduction program and low carbon fuel standard implemented by the state of California, we are required to reduce our emissions, blend certain levels of biofuels or obtain allowances or credits to offset the obligations created by our operations. In regard to each program, we record an asset, included in other current or other noncurrent assets on the balance sheet, for allowances or credits owned in excess of our anticipated current period compliance requirements. The asset value is based on the product of the excess allowances or credits as of the balance sheet date, if any, and the weighted average cost of those allowances or credits. We record a liability, included in other current or other noncurrent liabilities on the balance sheet, when we are deficient allowances or credits based on the product of the deficient amount as of the balance sheet date, if any, and the market price of the allowances or credits at the balance sheet date. The cost of allowances or credits used for compliance is reflected in cost of revenues on the income statement. Any gains or losses on the sale or expiration of allowances or credits are classified as other income on the income statement. Proceeds from offset or credits sales are included in investing activities - all other, net on the cash flow statement.

3.	ACCOUNTING STANDARDS

Recently Adopted

ASU 2014-09, Revenue - Revenue from Contracts with Customers (ASC 606)

On January 1, 2018, we adopted the new revenue standard, applying the modified retrospective method, whereby a cumulative effect is recorded to opening retained earnings and ASC 606 is applied prospectively. We recorded a net increase of $4 million to our retained earnings balance as of January 1, 2018 due to the cumulative effect of applying the new revenue standard.

Impact of Adoption

The adoption of ASC 606 did not materially change our revenue recognition patterns. The most significant impacts of adopting ASC 606 for the period ended December 31, 2018 are as follows:

•

a reduction of sales and other operating revenues of $6.66 billion for the year ended December 31, 2018 due to our accounting policy election to present taxes incurred concurrently with revenue producing transactions and collected on behalf of our customers on a net basis. For the year ended December 31, 2017, taxes are reflected on a gross basis in sales and other operating revenues and cost of revenues, and include $5.15 billion of taxes that are now subject to our net basis accounting policy election.

•

an increase to both sales and other operating revenues and cost of revenues of $502 million for the year ended December 31, 2018 related to certain Midstream contract provisions for third-party reimbursements, non-cash consideration and imbalances that require gross presentation under ASC 606. Comparative information continues to be reported under the accounting standards in effect for those periods.

Practical Expedients

We elected the completed contract practical expedient and only applied ASC 606 to contracts that were not completed as of January 1, 2018.

We do not disclose information on the future performance obligations for any contract with expected duration of one year or less at inception. As of December 31, 2018, we do not have future performance obligations that are material to future periods.

Receivables

On the accompanying consolidated balance sheets, receivables, less allowance for doubtful accounts primarily consists of customer receivables. Significant, non-customer balances included in our receivables at December 31, 2018 include matching buy/sell receivables of $1.64 billion and income taxes receivables of $88 million.

ASU 2016-16, Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory

We adopted this ASU in the first quarter of 2018 and recorded a $62 million cumulative-effect adjustment as an increase to retained earnings as of January 1, 2018 with the offset recorded as a reduction to deferred income taxes.

We also adopted the following ASUs during 2018, none of which had a material impact to our financial statements or financial statement disclosures:

ASU			Effective Date
2017-09	Stock Compensation - Scope of Modification Accounting		January 1, 2018
2017-07	Retirement Benefits - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Cost		January 1, 2018
2017-05	Gains and Losses from the Derecognition of Nonfinancial Assets - Clarifying the Scope of Asset Derecognition Guidance		January 1, 2018
2017-01	Business Combinations - Clarifying the Definition of a Business		January 1, 2018
2016-18	Statement of Cash Flows - Restricted Cash		January 1, 2018
2016-15	Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments		January 1, 2018
2016-01	Financial Instruments - Recognition and Measurement of Financial Assets and Liabilities		January 1, 2018

Not Yet Adopted

ASU 2018-02, Reporting Comprehensive Income - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

In February 2018, the FASB issued an ASU allowing an entity the choice to reclassify to retained earnings the tax effects related to the TCJA that are stranded in accumulated other comprehensive income. The amendment was effective January 1, 2019. We do not expect the application of this accounting standard update to have a material impact on our consolidated financial statements.

ASU 2017-12, Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities

In August 2017, the FASB issued an ASU to amend the hedge accounting rules to simplify the application of hedge accounting guidance and better portray the economic results of risk management activities in the financial statements. The guidance expands the ability to hedge nonfinancial and financial risk components, reduces complexity in fair value hedges of interest rate risk, eliminates the requirement to separately measure and report hedge ineffectiveness and eases certain hedge effectiveness assessment requirements. The guidance was effective January 1, 2019. We do not expect the application of this accounting standard update to have a material impact on our consolidated financial statements.

ASU 2017-04, Intangibles - Goodwill and Other - Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued an ASU 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, which could be different from the amount calculated under the current method using the implied fair value of the goodwill; 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.

ASU 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued an ASU 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 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 ASU to have a material impact on our consolidated financial statements.

ASU 2016-02 Leases and related updates

In February 2016, the FASB issued an ASU requiring lessees to record virtually all leases on their balance sheets. The ASU 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 guidance will be effective for fiscal years beginning after December 15, 2018, and interim periods within those years. As of January 1, 2019, we have transitioned to the new guidance.

As part of implementing this standard, we evaluated the impact of this standard on our financial statements, disclosures, internal controls and accounting policies. This evaluation process included reviewing all forms of leases, performing a completeness assessment over the lease population and analyzing the practical expedients in order to determine the best path of implementing changes to existing processes and controls. We have implemented a third-party supported lease accounting information system to account for our lease population in accordance with this new standard and established internal controls over the new system. We expect that adoption of the standard will result in the recognition of right-of-use assets and lease liabilities for operating leases on January 1, 2019 in the range of $2.5 billion to $3.0 billion. The adoption of ASC 842 will not have a material impact on our consolidated statements of income or cash flows, except for the potential effects from lease modifications where MPLX is the lessor as discussed below.

In addition, based on the changes presented in the standard, MPLX, as a lessor, may be required to re-classify existing operating leases to sales-type leases upon modification and related reassessment of the leases. If such modification were to occur, it may result in a de-recognition of existing assets, recognition of a receivable in the amount of the present value of fixed payments expected to be received by MPLX under the lease, and recognition of a corresponding gain or loss in the period of change.

4.	MASTER LIMITED PARTNERSHIPS

MPLX

MPLX is a diversified, large-cap publicly traded master limited partnership formed by us to own, operate, develop and acquire midstream energy infrastructure assets. MPLX is engaged in the transportation, storage and distribution of crude oil and refined petroleum products; gathering, processing and transportation of natural gas; and the gathering, transportation, fractionation, storage and marketing of NGLs.As of December 31, 2018, we owned 63.6 percent of the outstanding MPLX common units and we control MPLX through our ownership of the general partner of MPLX.

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 were used by MPLX 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 received cumulative quarterly distributions equal to $0.528125 per unit for the quarters prior to the second quarter of 2018. Beginning with the second quarter of 2018, the holders of the MPLX Preferred Units are entitled to receive a quarterly distribution equal to the greater of $0.528125 per unit or the amount of distributions they would have received on an as converted basis. For the income earned in the second through fourth quarters of 2018, the distribution rate declared to MPLX common unitholders was greater than $0.528125 per unit; accordingly, the holders of the MPLX Preferred Units received the common unit rates in lieu of the lower $0.528125 base amount.

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 and GP/IDR Exchange

On February 1, 2018, we contributed our refining logistics assets and fuels distribution services to MPLX in exchange for $4.1 billion in cash and approximately 112 million common units and 2 million general partner units from MPLX. MPLX financed the cash portion of the transaction with its $4.1 billion 364-day term loan facility, which was entered into on January 2, 2018. We agreed to waive approximately one-third of the first quarter 2018 distributions on the common units issued in connection with this transaction. The contributions of these assets were accounted for as transactions between entities under common control and we did not record a gain or loss.

Immediately following the February 1, 2018 dropdown to MPLX, our IDRs were cancelled and our economic general partner interest was converted into a non-economic general partner interest, all in exchange for 275 million newly issued MPLX common units (“GP/IDR Exchange”). As a result of this transaction, the general partner units and IDRs were eliminated, are no longer outstanding and longer participate in distributions of cash from MPLX.

On September 1, 2017, we contributed our joint-interest ownership in certain pipelines and storage facilities to MPLX in exchange for $420 million in cash and approximately 19 million MPLX common units and 378 thousand general partner units from MPLX. We also agreed to waive approximately two-thirds of the third quarter 2017 common unit distributions, IDRs and general partner distributions with respect to the common units issued in this transaction. The contributions of these assets were accounted for as transactions between entities under common control and we did not record a gain or loss.

On March 1, 2017, we contributed certain terminal, pipeline and storage assets to MPLX in exchange total consideration of $1.5 billion in cash and approximately 13 million common units and 264 thousand general partner units from MPLX. We also agreed to waive two-thirds of the first quarter 2017 common unit distributions, IDRs and general partner distributions with respect to the common units issued in the transaction. The contributions of these assets were accounted for as transactions between entities under common control and we 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. 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.

Agreements

We have various long-term, fee-based commercial agreements with MPLX. Under these agreements, MPLX provides transportation, storage, distribution and marketing services to us. Under certain agreements, we commit to provide MPLX with minimum quarterly throughput and distribution volumes of crude oil and refined products and minimum storage volumes of crude oil, refined products and butane. Under certain other agreements, we commit to pay for 100 percent of available capacity for certain marine transportation and refining logistics assets. We also have agreements with MPLX that 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, but are reflected as intersegment transactions between our Refining & Marketing and Midstream segments.

ANDX

Through the Andeavor acquisition, we acquired control of ANDX, which is a publicly traded limited partnership that was formed to own, operate, develop and acquire logistics assets. Its assets are integral to the success of our refining and marketing operations and are used to gather crude oil, natural gas, and water, process natural gas and distribute, transport and store crude oil and refined products. ANDX provides us with various pipeline transportation, trucking, terminal distribution, storage and petroleum-coke handling services under long-term, fee-based commercial agreements. Each of these agreements, with the exception of the storage and transportation services agreement, contain minimum volume commitments.

As of December 31, 2018, we owned 63.6 percent of the outstanding ANDX common units. We also hold 80,000 ANDX TexNew Mex Units and all the outstanding non-economic general partner interests as of December 31, 2018.

Noncontrolling Interest

As a result of equity transactions of MPLX and ANDX, we are required to adjust non-controlling interest and additional paid-in capital. Changes in MPC’s additional paid-in capital resulting from changes in its ownership interest in MPLX and ANDX were as follows:

(In millions)	2018				2017				2016
Increase (decrease) due to the issuance of MPLX & ANDX common units to the public	$	6			$	25			$	(60	)
Increase due to the issuance of MPLX & ANDX common units and general partner units to MPC	1,114				114				121
Increase due to GP/IDR Exchange	1,808				—				—
Increase in MPC's additional paid-in capital	2,928				139				61
Tax impact	(571		)		(29		)		(118		)
Increase (decrease) in MPC's additional paid-in capital, net of tax	$	2,357			$	110			$	(57	)

5.	ACQUISITIONS

Acquisition of Andeavor

On October 1, 2018, we acquired all the outstanding shares of Andeavor. Under the terms of the merger agreement, Andeavor stockholders had the option to choose 1.87 shares of MPC common stock or $152.27 in cash per share of Andeavor common stock. The merger agreement included election proration provisions that resulted in approximately 22.9 million shares of Andeavor common stock being converted into cash consideration and the remaining 128.2 million shares of Andeavor common stock being converted into stock consideration. Andeavor stockholders received in the aggregate approximately 239.8 million shares of MPC common stock valued at $19.8 billion and approximately $3.5 billion in cash in connection with the Andeavor acquisition. The fair value of the MPC shares issued was determined on the basis of the closing market price of MPC’s common shares on the acquisition date. The cash portion of the purchase price was funded using cash on hand.

At the time of the acquisition, all Andeavor equity awards, with the exception of non-employee director units, were converted to MPC equity awards. The converted equity awards will continue to be governed by the same terms and conditions as were applicable to such Andeavor equity awards immediately prior to the acquisition. We recognized $203 million of purchase consideration to reflect the portion of the fair value of the time-based converted equity awards attributable to pre-combination service completed by the award holders. The non-employee director units were accelerated in full and cancelled and the holders of such units received an amount of cash equal to the number of shares of Andeavor common stock subject to such non-employee director units multiplied by the cash consideration per share.

Our financial reflect the results of Andeavor from October 1, 2018, the date of the acquisition.

The components of the fair value of consideration transferred are as follows:

(In millions)
Fair value of MPC shares issued		$	19,766
Cash payment to Andeavor stockholders		3,486
Cash settlement of non-employee director units		7
Fair value of converted equity awards		203
Total fair value of consideration transferred		$	23,462

We accounted for the Andeavor acquisition using the acquisition method of accounting, which requires Andeavor assets and liabilities to be recorded to our balance sheet at fair value as of the acquisition date. We will complete a final determination of the fair value of certain assets and liabilities within the one year measurement period from the date of the acquisition as required by FASB ASC Topic 805, “Business Combinations”. Due to the level of effort required to develop fair value measurements and the proximity of the acquisition date to December 31, 2018, the valuation studies necessary to determine the fair value of assets acquired and liabilities assumed are preliminary, including the underlying cash flows used to determine the fair value of identified intangible assets and economic obsolescence adjustments to property, plant and equipment. The size and the breath of the Andeavor acquisition necessitates the use of the one year measurement period to fully analyze all the factors used in establishing the asset and liability fair values as of the acquisition date, including, but not limited to, property, plant and equipment, intangible assets, real property, leases, environmental and asset retirement obligations and the related tax impacts of any changes made. Any potential adjustments made could be material in relation to the preliminary values presented below.

(In millions)
Cash and cash equivalents		$	382
Receivables		2,744
Inventories		5,204
Other current assets		378
Equity method investments		865
Property, plant and equipment, net		16,545
Other noncurrent assets(a)		3,086
Total assets acquired		29,204
Accounts payable		4,003
Payroll and benefits payable		348
Accrued taxes		590
Debt due within one year		34
Other current liabilities		392
Long-term debt		8,875
Deferred income taxes		1,609
Defined benefit postretirement plan obligations		432
Deferred credit and other liabilities		714
Noncontrolling interests		5,059
Total liabilities and noncontrolling interest assumed		22,056
Net assets acquired excluding goodwill		7,148
Goodwill		16,314
Net assets acquired		$	23,462

(a)	Includes intangible assets.

Details of our valuation methodology and significant inputs for fair value measurements are included by asset class below. The fair value measurements for equity method investments, property, plant and equipment, intangible assets and long-term debt are based on significant inputs that are not observable in the market and, therefore, represent Level 3 measurements.

Goodwill

The preliminary purchase consideration allocation resulted in the recognition of $16.3 billion in goodwill, of which $893 million is tax deductible due to a carryover basis from Andeavor. Our Refining & Marketing, Midstream and Retail segments recognized $4.7 billion, $7.7 billion and $3.9 billion of preliminary goodwill. The recognized goodwill represents the value expected to be created by further optimization of crude supply, a nationwide retail and marketing platform, diversification of our refining and midstream footprints and optimization of information systems and business processes.

Inventory

The fair value of inventory was determined by recognizing crude oil and feedstocks at market prices as of October 1, 2018 and recognizing refined product inventory at market prices less selling costs and profit margin associated with the remaining distribution process.

Equity Method Investments

The fair value of the equity method investments was determined based on applying income and market approaches. The income approach relied on the discounted cash flow method and the market approach relied on a market multiple approach considering historical and projected financial results. Discount rates for the discounted cash flow models were based on capital structures for similar market participants and included various risk premiums that account for risks associated with the specific investments. For more information about our equity method investments, see Note 14.

Property, Plant and Equipment

The preliminary fair value of property, plant and equipment is $16.5 billion, which is based primarily on the cost approach. Key assumptions in the cost approach include determining the replacement cost by evaluating recent purchases of similar assets or published data, and adjusting replacement cost for economic and functional obsolescence, location, normal useful lives, and capacity (if applicable).

Acquired Intangible Assets

The preliminary fair value of the acquired identifiable intangible assets is $2.8 billion, which represents the value of various customer contracts and relationships, brand rights and tradenames and other intangible assets. The preliminary fair value of customer contracts and relationships is $2.5 billion, which was valued by applying the multi-period excess earnings method, which is an income approach. Key assumptions in the income approach include the underlying contract cash flow estimates, remaining contract term, probability of renewal, growth rates and discount rates. Brand rights and tradenames were valued by applying the relief of royalty method, which is an income approach. The intangible assets are all finite lived and will be amortized over 2 to 10 years.

Debt

The fair value of the Andeavor and ANDX unsecured notes was measured using a market approach, based upon the average of quotes for the acquired debt from major financial institutions and a third-party valuation service. Additionally, $1.5 billion of borrowings under revolving credit agreements and other debt of approximately $200 million approximated fair value.

Noncontrolling Interest

Through the Andeavor acquisition, we acquired the general partnership interest of ANDX, which is a VIE because the limited partners of ANDX do not have substantive kick-out or substantive participating rights over the general partner. We are the primary beneficiary of ANDX because in addition to our significant economic interest, we also have the ability, through our 100 percent ownership of the general partner, to control the decisions that most significantly impact ANDX. The fair value of the noncontrolling interest in ANDX was based on the share price, shares outstanding and the percent of public unitholders of ANDX on October 1, 2018. The share price of ANDX is a Level 1 measurement.

Acquisition Costs

We recognized $47 million in acquisition costs. Additionally, we recognized various other transaction-related costs, including employee-related costs associated with the Andeavor acquisition. All of these costs are reflected in selling, general and administrative expenses for the year ended December 31, 2018. The employee-related costs are primarily due to pre-existing Andeavor change in control and equity award agreements that create obligations and accelerated equity vesting upon MPC notifying employees of significant changes to or elimination of their responsibilities as part of our ongoing integration efforts.

Andeavor Revenues and Income from Operations

Andeavor’s results have been included in MPC’s financial statements for the period subsequent to the date of the acquisition on October 1, 2018. Andeavor contributed revenues of approximately $11.3 billion for the period from October 1 through December 31, 2018. We do not believe it is practical to disclose Andeavor’s contribution to earnings for the period from October 1, 2018 through December 31, 2018 as our integration efforts have resulted in the elimination of Andeavor stand-alone discrete financial information due mainly to our inclusion of Andeavor inventory in our consolidated LIFO inventory pools, which does not allow us to objectively distinguish the cost of sales between the two historical reporting entities.

Pro Forma Financial Information

The following unaudited pro forma financial information presents consolidated results assuming the Andeavor acquisition occurred on January 1, 2017.

(In millions, except per share data)		2018				2017
Sales and other operating revenues(a)		$	131,695			$	117,549
Net income attributable to MPC		4,371				4,832
Net income attributable to MPC per share – basic		$	8.44			$	6.47
Net income attributable to MPC per share – diluted		8.31				6.41

(a)	The 2018 period reflects an election to present certain taxes on a net basis concurrent with our adoption of ASC 606.

The pro forma information includes adjustments to align accounting policies, an adjustment to depreciation expense to reflect the increased fair value of property, plant and equipment, increased amortization expense related to identifiable intangible assets and the related income tax effects. The pro forma information does not reflect the $727 million effect on net income attributable to MPC related to purchase accounting related inventory effects and transaction-related costs as these charges do not have a continuing impact on the consolidated results.

Acquisition of Express Mart

During the fourth quarter of 2018, Speedway acquired 78 store locations from Petr-All Petroleum Consulting Corporation for total consideration of $266 million. These stores are located primarily in the Syracuse, Rochester and Buffalo markets in New York and operate under the Express Mart brand.

Based on the final fair value estimates of assets acquired and liabilities assumed at the acquisition date, $97 million of the purchase price was allocated to property, plant and equipment, $9 million to inventory, $2 million to intangibles and $158 million to goodwill. Goodwill is tax deductible and represents the value expected to be created by geographically expanding our retail platform and the assembled workforce.

The amount of revenue and income from operations associated with the acquisition from the acquisition date to December 31, 2018 did not have a material impact on the consolidated financial statements. In addition, assuming the acquisition had occurred on January 1, 2017, the consolidated pro forma results would not have been materially different from the reported results.

Acquisition of Mt. Airy Terminal

On September 26, 2018, MPLX acquired an eastern U.S. Gulf Coast export terminal (“Mt. Airy Terminal”) from Pin Oak Holdings, LLC for total consideration of $451 million. The terminal includes 4 million barrels of third-party leased storage capacity and a 120 mbpd dock. The Mt. Airy Terminal is located on the Mississippi River between New Orleans and Baton Rouge, near several Gulf Coast refineries, including our Garyville Refinery, and numerous rail lines and pipelines. The Mt. Airy Terminal is accounted for within the Midstream segment.

Based on the final fair value estimates of assets acquired and liabilities assumed at the acquisition date, $336 million of the purchase price was allocated to property, plant and equipment and $126 million to goodwill with the remaining difference being primarily allocated to net assumed liabilities. Goodwill is tax deductible and represents the significant growth potential of the terminal due to the multiple pipelines and rail lines which cross the property, the terminal’s position as an aggregation point for liquids growth in the region for both ocean-going vessels and inland barges, the proximity of the terminal to our Garyville refinery and other refineries in the region as well as the capability to construct an additional dock at the site.

The amount of revenue and income from operations associated with the acquisition from the terminal acquisition date to December 31, 2018 did not have a material impact on the consolidated financial statements. In addition, assuming the terminal acquisition had occurred on January 1, 2017, the consolidated pro forma results would not have been materially different from the reported results.

Acquisition of Ozark Pipeline

On March 1, 2017, MPLX acquired the Ozark pipeline from Enbridge Pipelines (Ozark) LLC for approximately $219 million, including purchase price adjustments made in the second quarter of 2017. Based on the fair value of assets acquired and liabilities assumed at the acquisition date, the final purchase price was primarily allocated to property, plant and equipment. 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. We present the Ozark pipeline within the Midstream segment.

The amount of revenue and income from operations associated with the acquisition from the acquisition date to December 31, 2017 did not have a material impact on the consolidated financial statements. In addition, assuming the acquisition of the Ozark pipeline had occurred on January 1, 2016, the consolidated pro forma results would not have been materially different from reported results.

Investment in Pipeline Company

On February 15, 2017, MPLX acquired 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, MarEn Bakken Company LLC (“MarEn Bakken”), 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 MarEn Bakken, which equates to an approximate 9.2 percent indirect equity interest in the Bakken Pipeline system. We account for the investment in MarEn Bakken as part of our Midstream segment using the equity method of accounting.

Formation of Gathering and Processing Joint Venture

Effective January 1, 2017, MPLX and Antero Midstream formed a joint venture, Sherwood Midstream LLC (“Sherwood Midstream”), to support the development of Antero Resources Corporation’s Marcellus Shale acreage in West Virginia. MPLX has a 50 percent ownership interest in Sherwood Midstream. In connection with this transaction, MPLX contributed assets then

under construction at the Sherwood Complex with a fair value of approximately $134 million and cash of approximately $20 million. Antero Midstream made an initial capital contribution of approximately $154 million.

Also effective January 1, 2017, MPLX converted all of its ownership interests in MarkWest Ohio Fractionation Company, L.L.C. (“Ohio Fractionation”), a previously wholly-owned subsidiary, to Class A Interests and amended its LLC Agreement to create Class B-3 Interests, which were sold to Sherwood Midstream for $126 million in cash. The Class B-3 Interests provide Sherwood Midstream with the right to fractionation revenue and the obligation to pay expenses related to 20 mbpd of capacity in the Hopedale 3 fractionator.

Effective January 1, 2017, MPLX and Sherwood Midstream formed a joint venture, Sherwood Midstream Holdings LLC (“Sherwood Midstream Holdings”), for the purpose of owning, operating and maintaining all of the shared assets for the benefit of and use in the operation of the gas plants and other assets owned by Sherwood Midstream and the gas plants and deethanization facilities owned by MPLX. MPLX contributed certain real property, equipment and facilities with a fair value of approximately $209 million to Sherwood Midstream Holdings in exchange for a 79 percent initial ownership interest. Sherwood Midstream contributed cash of approximately $44 million to Sherwood Midstream Holdings in exchange for a 21 percent initial ownership interest. The net book value of the contributed assets was approximately $203 million. The contribution was determined to be an in-substance sale of real estate. As such, MPLX only recognized a gain for the portion attributable to Antero Midstream’s indirect interest of approximately $2 million.

We account for our direct interests in Sherwood Midstream and Sherwood Midstream Holdings as part of our Midstream segment using the equity method of accounting. We continue to consolidate Ohio Fractionation and have recognized a noncontrolling interest for Sherwood Midstream’s interest in that entity.

See Note 6 for additional information related to the investments in Sherwood Midstream, Ohio Fractionation and Sherwood Midstream Holdings.

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 travel plazas, primarily in the Southeast United States. The new entity, PFJ Southeast LLC (“PFJ Southeast”), originally 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 $273 million non-cash contribution of our travel plazas 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, $62 million of goodwill and $8 million of inventory.

6.	VARIABLE INTEREST ENTITIES

Consolidated VIEs

We control MPLX and ANDX through our ownership of the general partner of both entities. MPLX and ANDX are VIEs because the limited partners do not have substantive kick-out or substantive participating rights over the general partner. We are the primary beneficiary of both MPLX and ANDX because in addition to our significant economic interest, we also have the ability, through our ownership of the general partner, to control the decisions that most significantly impact MPLX and ANDX. We therefore consolidate MPLX and ANDX and record a noncontrolling interest for the interest owned by the public. We also record a redeemable noncontrolling interest related to MPLX’s preferred units.

The creditors of MPLX and ANDX do not have recourse to MPC’s general credit through guarantees or other financial arrangements. MPC has effectively guaranteed certain indebtedness of LOOP LLC (“LOOP”) and LOCAP LLC (“LOCAP”), in which MPLX holds an interest. See Note 25 for more information.

The assets of MPLX and ANDX can only be used to settle their own obligations and their creditors have no recourse to our assets. The following table present balance sheet information for the assets and liabilities of MPLX and ANDX, which are included in our balance sheets.

	December 31, 2018								December 31, 2017
(In millions)	MPLX				ANDX(a)				MPLX
Assets
Cash and cash equivalents	$	68			$	10			$	5
Receivables, less allowance for doubtful accounts	425				199				299
Inventories	77				22				65
Other current assets	45				57				29
Equity method investments	4,174				602				4,010
Property, plant and equipment, net	14,639				6,845				12,187
Goodwill	2,586				1,051				2,245
Other noncurrent assets	458				1,242				479
Liabilities
Accounts payable	$	776			$	215			$	621
Payroll and benefits payable	2				10				1
Accrued taxes	48				23				38
Debt due within one year	1				504				1
Other current liabilities	177				77				130
Long-term debt	13,392				4,469				6,945
Deferred income taxes	13				1				5
Defined benefit postretirement plan obligations	—				—				—
Deferred credits and other liabilities	276				68				230

(a)	The balances reflected here are ANDX’s historical balances as the preliminary purchase accounting adjustments related to ANDX’s assets and liabilities in connection with the Andeavor acquisition and reflected on our consolidated balance sheet as of December 31, 2018 have not yet been pushed down to this subsidiary.

Non-Consolidated VIEs

Crowley Coastal Partners

In May 2016, Crowley Coastal Partners LLC (“Crowley Coastal Partner”) was formed to own an interest in both Crowley Ocean Partners LLC (“Crowley Ocean Partners”) and Crowley Blue Water Partners LLC (“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, 2018 was $481 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 ability 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”), executed agreements to form a joint venture, MarkWest Utica EMG LLC (“MarkWest Utica EMG”), to develop significant natural gas gathering, processing and NGL fractionation, transportation and marketing infrastructure in eastern Ohio.

As of December 31, 2018, MarkWest had 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. 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, 2018 was $2.0 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 between MarkWest Utica EMG and Summit Midstream Partners, LLC. As of December 31, 2018, 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.

Sherwood Midstream

As described in Note 5, MPLX and Antero Midstream formed a joint venture, Sherwood Midstream, to support the development of Antero Resources Corporation’s Marcellus Shale acreage in West Virginia. As of December 31, 2018, MPLX had a 50 percent ownership interest in Sherwood Midstream. Sherwood Midstream’s inability to fund its planned activities without additional subordinated financial support qualify it as a VIE. MPLX is not deemed to be the primary beneficiary, due to Antero Midstream’s voting rights on significant matters. We account for our ownership interest in Sherwood Midstream using the equity method of accounting. Our maximum exposure to loss as a result of our involvement with Sherwood Midstream 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 Sherwood Midstream at December 31, 2018 was $366 million.

Ohio Fractionation

As described in Note 5, MPLX converted all of its ownership interests in Ohio Fractionation to Class A Interests and amended its LLC Agreement to create Class B-3 Interests, which were sold to Sherwood Midstream, providing it with the right to fractionation revenue and the obligation to pay expenses related to 20 mbpd of capacity in the Hopedale 3 fractionator. Ohio Fractionation’s inability to fund its operations without additional subordinated financial support qualify it as a VIE. MPLX has been deemed to be the primary beneficiary of Ohio Fractionation because it has control over decisions that could significantly impact its financial performance, and as a result, consolidates Ohio Fractionation.

Sherwood Midstream Holdings

As described in Note 5, MPLX and Sherwood Midstream entered into a joint venture, Sherwood Midstream Holdings, for the purpose of owning, operating and maintaining all of the shared assets for the benefit of and use in the operation of the gas plants and other assets owned by Sherwood Midstream and the gas plants and deethanization facilities owned by MPLX. MPLX had an initial 79 percent direct ownership in Sherwood Midstream Holdings, in addition to an initial 10.5 percent indirect interest through its ownership in Sherwood Midstream. Sherwood Midstream Holdings’ inability to fund its operations without additional subordinated financial support qualify it as a VIE. We account for our ownership interest in Sherwood Midstream Holdings using the equity method of accounting as Sherwood Midstream is considered to be the general partner and controls all decisions related to Sherwood Midstream Holdings. Our maximum exposure to loss as a result of our involvement with Sherwood Midstream Holdings 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 Sherwood Midstream Holdings at December 31, 2018 was $157 million.

Other Non-Consolidated VIEs

We have a 67 percent ownership interest in Andeavor Logistics Rio Pipeline LLC (“ALRP”), a recently constructed crude oil pipeline located in the Delaware and Midland basins in west Texas. We are not the primary beneficiary of ALRP because we jointly direct the activities of ALRP that most significantly impact its economic performance with the other minor shareholder. Our equity investment in ALRP at December 31, 2018 was $181 million.

We have a 78 percent ownership interest in Rendezvous Gas Services, LLC (“RGS”), which owns and operates the infrastructure that transports gas from certain fields to several re-delivery points in southwestern Wyoming, including natural gas processing facilities that are owned by us or a third party. We are not the primary beneficiary of RGS. Our equity investment in RGS at December 31, 2018 was $248 million.

ALRP and RGS are unconsolidated variable interest entities and we use the equity method of accounting with respect to our investments in each entity.

7.	RELATED PARTY TRANSACTIONS

We believe that transactions with related parties were conducted on terms comparable to those with unaffiliated parties.

Transactions with related parties were as follows:

(In millions)	2018				2017				2016
Sales to related parties(a)	$	754			$	629			$	62
Purchases from related parties(b)	610				570				509

(a)	Sales to related parties consists primarily of sales of refined products to PFJ Southeast, an equity affiliate which owns and operates travel plazas primarily in the Southeast region of the United States.

(b)	We obtain transportation services and purchase ethanol from certain of our equity affiliates, none of which is individually material.

8.	INCOME PER COMMON SHARE

We compute basic earnings per share by dividing net income attributable to MPC less income allocated to participating securities by the weighted average number of shares of common stock outstanding. Since MPC grants certain incentive compensation awards to employees and non-employee directors that are considered to be participating securities, we have calculated our earnings per share using the two-class method. Diluted income per share assumes exercise of certain stock-based compensation awards, provided the effect is not anti-dilutive.

(In millions, except per share data)	2018				2017				2016
Basic earnings per share:
Allocation of earnings:
Net income attributable to MPC	$	2,780			$	3,432			$	1,174
Income allocated to participating securities	1				2				1
Income available to common stockholders – basic	$	2,779			$	3,430			$	1,173
Weighted average common shares outstanding	518				507				528
Basic earnings per share	$	5.36			$	6.76			$	2.22
Diluted earnings per share:
Allocation of earnings:
Net income attributable to MPC	$	2,780			$	3,432			$	1,174
Income allocated to participating securities	1				2				1
Income available to common stockholders – diluted	$	2,779			$	3,430			$	1,173
Weighted average common shares outstanding	518				507				528
Effect of dilutive securities	8				5				2
Weighted average common shares, including dilutive effect	526				512				530
Diluted earnings per share	$	5.28			$	6.70			$	2.21

The following table summarizes the shares that were anti-dilutive, and therefore, were excluded from the diluted share calculation.

(In millions)	2018			2017			2016
Shares issuable under stock-based compensation plans	—			1			3

9.	EQUITY

On October 1, 2018, in connection with the Andeavor acquisition, we amended our certificate of incorporation to increase the number of authorized shares of MPC common stock from one billion to two billion, as approved by MPC stockholders at MPC’s September 24, 2018 special meeting of stockholders.

As of December 31, 2018, we had $4.90 billion of remaining share repurchase authorizations from our board of directors. 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 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)	2018				2017				2016
Number of shares repurchased	47				44				4
Cash paid for shares repurchased	$	3,287			$	2,372			$	197
Average cost per share	$	69.46			$	53.85			$	41.84

10.	SEGMENT INFORMATION

We have three reportable segments: Refining & Marketing; Retail; 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 16 refineries in the West Coast, Gulf Coast and Mid-Continent regions of the United States, purchases refined products and ethanol for resale and distributes refined products largely through transportation, storage, distribution and marketing services provided largely by our Midstream segment. We sell refined products to wholesale marketing customers domestically and internationally, to buyers on the spot market, to our Retail business segment and to independent entrepreneurs who operate primarily Marathon® branded outlets.

•	Retail – sells transportation fuels and convenience products in the retail market across the United States through company-owned and operated convenience stores, primarily under the Speedway brand, and long-term fuel supply contracts with direct dealers who operate locations mainly under the ARCO brand.

•

Midstream – transports, stores, distributes and markets crude oil and refined products principally for the Refining & Marketing segment via refining logistics assets, pipelines, terminals, towboats and barges; gathers, processes and transports natural gas; and gathers, transports, fractionates, stores and markets NGLs. The Midstream segment primarily reflects the results of MPLX and ANDX, our sponsored master limited partnerships.

On October 1, 2018, we acquired Andeavor and its results are included in each of our segments from the date of the acquisition. Also, on February 1, 2018, we contributed certain refining logistics assets and fuels distribution services to MPLX. The results of these new businesses are reported in the Midstream segment prospectively from February 1, 2018, resulting in a net reduction of $874 million to Refining & Marketing segment results and a net increase to Midstream segment results of the same amount. No effect was given to prior periods as these entities were not considered businesses prior to February 1, 2018.

Segment income represents income from operations attributable to the reportable segments. Corporate administrative expenses, except for those attributable to MPLX and ANDX, 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 the third quarter of 2018, we began reporting segment capital expenditures and investments excluding acquisitions in the current and comparative periods.

(In millions)	Refining & Marketing				Retail				Midstream				Total
Year Ended December 31, 2018
Revenues:
Third party	$	68,939			$	23,538			$	3,273			$	95,750
Intersegment	12,914				6				3,387				16,307
Related party	746				8				—				754
Segment revenues	$	82,599			$	23,552			$	6,660			$	112,811
Segment income from operations	$	2,481			$	1,028			$	2,752			$	6,261
Income from equity method investments(b)	15				74				274				363
Depreciation and amortization(b)	1,174				353				885				2,412
Capital expenditures and investments(c)	1,057				460				2,630				4,147

(In millions)	Refining & Marketing				Retail				Midstream				Total
Year Ended December 31, 2017
Revenues:
Third party	$	52,761			$	19,021			$	2,322			$	74,104
Intersegment(a)	11,309				4				1,443				12,756
Related party	621				8				—				629
Segment revenues	$	64,691			$	19,033			$	3,765			$	87,489
Segment income from operations	$	2,321			$	729			$	1,339			$	4,389
Income from equity method investments(b)	17				69				197				283
Depreciation and amortization(b)	1,082				275				699				2,056
Capital expenditures and investments(c)	832				381				1,755				2,968

(In millions)	Refining & Marketing				Retail				Midstream				Total
Year Ended December 31, 2016
Revenues:
Third party	$	43,167			$	18,282			$	1,828			$	63,277
Intersegment(a)	10,589				3				1,262				11,854
Related party	61				1				—				62
Segment revenues	$	53,817			$	18,286			$	3,090			$	75,193
Segment income from operations(d)	$	1,357			$	733			$	1,048			$	3,138
Income from equity method investments(b)	24				5				142				171
Depreciation and amortization(b)	1,063				273				605				1,941
Capital expenditures and investments(c)	1,054				303				1,558				2,915

(a)	Management believes intersegment transactions were conducted under terms comparable to those with unaffiliated parties.

(b)	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.

(c)	Capital expenditures include changes in capital accruals and investments in affiliates.

(e)	In 2016, the Refining & Marketing and Retail segments include an inventory LCM benefit of $345 million and $25 million, respectively.

The following reconciles segment income from operations to income before income taxes as reported in the consolidated statements of income:

(In millions)	2018				2017				2016
Segment income from operations	$	6,261			$	4,389			$	3,138
Items not allocated to segments:
Corporate and other unallocated items(a)	(502		)		(365		)		(266		)
Transaction-related costs	(197		)		—				—
Litigation	—				(29		)		—
Impairments(b)	9				23				(486		)
Income from operations	5,571				4,018				2,386
Net interest and other financial costs	1,003				674				564
Income before income taxes	$	4,568			$	3,344			$	1,822

(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 and ANDX, which are included in the Midstream segment. Corporate overhead expenses are not allocated to the Refining & Marketing and Retail segments.

(b)	2018 and 2017 includes MPC’s share of gains from the the sale of assets remaining from the canceled Sandpiper pipeline project. 2016 includes impairments of goodwill and equity method investments. See Note 17.

The following reconciles segment capital expenditures and investments to total capital expenditures:

(In millions)	2018				2017				2016
Segment capital expenditures and investments	$	4,147			$	2,968			$	2,915
Less investments in equity method investees	409				305				288
Plus items not allocated to segments:
Corporate	77				83				81
Capitalized interest	80				55				63
Total capital expenditures(a)	$	3,895			$	2,801			$	2,771

(a)	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.

Revenues by product line were:

(In millions)	2018				2017				2016
Refined products	$	83,888			$	63,846			$	54,450
Merchandise	5,332				5,174				5,297
Crude oil and refinery feedstocks	4,143				3,403				2,038
Midstream services, transportation and other	2,387				1,681				1,492
Sales and other operating revenues(a)	$	95,750			$	74,104			$	63,277

(a)	The 2018 period reflects an election to present certain taxes on a net basis concurrent with our adoption of ASC 606.

No single customer accounted for more than 10 percent of annual revenues for the years ended December 31, 2018, 2017 and 2016.

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.

11.	NET INTEREST AND OTHER FINANCIAL COSTS

Net interest and other financial costs was:

(In millions)	2018				2017				2016
Interest income	$	(87	)		$	(27	)		$	(6	)
Interest expense	1,026				688				602
Interest capitalized	(80		)		(63		)		(64		)
Pension and other postretirement non-service costs(a)	53				49				8
Loss on extinguishment of debt	64				—				—
Other financial costs	27				27				24
Net interest and other financial costs	$	1,003			$	674			$	564

(a)	See Note 22.

12.	INCOME TAXES

The TCJA was signed into law on December 22, 2017, providing several significant changes to U.S. tax law, including a reduction in the corporate tax rate from 35 percent to 21 percent effective for MPC in 2018. As a result of the rate change, MPC was required to calculate the effect of the TCJA on its deferred tax balances as of the enactment date, which was to reduce net deferred tax liabilities by $1.5 billion in 2017.

Income tax provisions (benefits) were:

	2018												2017												2016
(In millions)	Current				Deferred				Total				Current				Deferred				Total				Current				Deferred				Total
Federal	$	715			$	2			$	717			$	681			$	(1,270	)		$	(589	)		$	189			$	336			$	525
State and local	178				61				239				98				33				131				27				57				84
Foreign	22				(16		)		6				(6		)		4				(2		)		(1		)		1				—
Total	$	915			$	47			$	962			$	773			$	(1,233	)		$	(460	)		$	215			$	394			$	609

A reconciliation of the federal statutory income tax rate applied to income before income taxes to the provision for income taxes follows:

	2018			2017			2016
Statutory rate applied to income before income taxes	21	%		35	%		35	%
State and local income taxes, net of federal income tax effects	4			2			3
Domestic manufacturing deduction	—			(1	)		(1	)
Noncontrolling interests	(4	)		(4	)		(1	)
Biodiesel excise tax credit	—			—			(1	)
TCJA legislation	—			(45	)		—
Other	—			(1	)		(2	)
Provision for income taxes	21	%		(14	)%		33	%

Deferred tax assets and liabilities resulted from the following:

	December 31,
(In millions)	2018				2017
Deferred tax assets:
Employee benefits	$	660			$	348
Environmental remediation	111				16
Debt financing	39				—
Net operating loss carryforwards	17				12
Foreign currency	28				13
Tax credit carryforwards	21				—
Other	88				31
Total deferred tax assets	964				420
Deferred tax liabilities:
Property, plant and equipment	2,830				1,603
Inventories	678				473
Investments in subsidiaries and affiliates	2,130				912
Intangibles	97				70
Other	64				3
Total deferred tax liabilities	5,799				3,061
Net deferred tax liabilities	$	4,835			$	2,641

The increase in net deferred tax liabilities is primarily related to the revaluation of MPC’s legacy deferred tax liabilities and the recognition of net deferred tax liabilities both as a result of the Andeavor acquisition.

Net deferred tax liabilities were classified in the consolidated balance sheets as follows:

	December 31,
(In millions)	2018				2017
Assets:
Other noncurrent assets	$	29			$	13
Liabilities:
Deferred income taxes	4,864				2,654
Net deferred tax liabilities	$	4,835			$	2,641

Tax Carryforwards

At December 31, 2018 and 2017, federal operating loss carryforwards were $7 million and $5 million, respectively, which expire in 2022 through 2037. As of December 31, 2018 and 2017, state and local operating loss carryforwards were $10 million and $8 million, respectively, which expire in 2017 through 2037.

Valuation Allowances

As of December 31, 2018 and 2017, $10 million and $11 million of valuation allowances have been recorded against foreign tax credits and state net operating losses due to the expectation that these deferred tax assets are not likely to be realized.

MPC is continuously undergoing examination of its U.S. federal income tax returns by the Internal Revenue Service (“IRS”). Since 2012, we have continued to participate in the Compliance Assurance Process (“CAP”). CAP is a real-time audit of the U.S. Federal income tax return that allows the IRS, working in conjunction with MPC, to determine tax return compliance with the U.S. Federal tax law prior to filing the return. This program provides us with greater certainty about our tax liability for years under examination by the IRS. While Andeavor also undergoes continual IRS examination, it did not participate in the CAP for tax periods prior to the acquisition of Andeavor.

MPC’s IRS audits have been completed through the 2009 tax year. Andeavor and its subsidiaries’ IRS audits have been completed through the 2008 tax year. We believe adequate provision has been established for potential tax in periods not closed to examination. Further, we are routinely involved in U.S. state income tax audits. We believe all other audits will be resolved with the amounts provided for these liabilities. As of December 31, 2018, our income tax returns remain subject to examination in the following major tax jurisdictions for the tax years indicated:

United States Federal	2009	-	2017
States	2006	-	2017

The following table summarizes the activity in unrecognized tax benefits:

(In millions)	2018				2017				2016
January 1 balance	$	19			$	7			$	12
Additions for tax positions of prior years	—				13				6
Reductions for tax positions of prior years	(5		)		—				(10		)
Settlements	—				(1		)		(1		)
Statute of limitations	(12		)		—				—
Acquired from Andeavor	209				—				—
December 31 balance	$	211			$	19			$	7

If the unrecognized tax benefits as of December 31, 2018 were recognized, $201 million would affect our effective income tax rate. There were $15 million of uncertain tax positions as of December 31, 2018 for which it is reasonably possible that the amount of unrecognized tax benefits would significantly decrease during the next twelve months. The unrecognized tax benefits acquired from Andeavor arise primarily from a 2009-2010 refund claim related to the federal income tax effects of receiving an excise tax credit on ethanol blending for those years.

Prior to its spinoff on June 30, 2011, Marathon Petroleum Corporation was included in the Marathon Oil Corporation (“Marathon Oil”) U.S. federal income tax returns for all applicable years. During the third quarter of 2017, Marathon Oil received a notice of Final Partnership Administrative Adjustment (“FPAA”) from the IRS for taxable year 2010, relating to certain partnership transactions. Marathon Oil filed a U.S. Tax Court petition disputing these adjustments during the fourth quarter of 2017. We received an FPAA for taxable years 2011-2014 for items resulting from the Marathon Oil IRS dispute

discussed above. We filed a U.S. Tax Court petition in the fourth quarter of 2017 for tax years 2011-2014 to dispute these corollary adjustments. We continue to believe that the issue in dispute is more likely than not to be fully sustained and therefore, no liability has been accrued for this matter.

Pursuant to our tax sharing agreement with Marathon Oil, the unrecognized tax benefits related to pre-spinoff operations for which Marathon Oil was the taxpayer remain the responsibility of Marathon Oil and we have indemnified Marathon Oil accordingly. See Note 25 for indemnification information.

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 $1 million, $3 million and ($5) million in 2018, 2017 and 2016, respectively. As of December 31, 2018 and 2017, $18 million and $17 million of interest and penalties were accrued related to income taxes.

13.	INVENTORIES

	December 31,
(In millions)	2018				2017
Crude oil and refinery feedstocks	$	3,655			$	2,056
Refined products	5,234				2,839
Materials and supplies	720				494
Merchandise	228				161
Total	$	9,837			$	5,550

The LIFO method accounted for 92 percent and 90 percent of total inventory value at December 31, 2018 and 2017, respectively. There was no excess of replacement or current cost over our stated LIFO cost as of December 31, 2018. Current acquisition costs of inventories were estimated to exceed the LIFO inventory value at December 31, 2017 by $1.21 billion.

During 2017, we recorded LIFO liquidations caused primarily by permanently decreased levels in our crude oil inventory. Cost of revenues increased and income from operations decreased by $7 million for the year ended December 31, 2017 due to LIFO liquidations. There were no material liquidations of LIFO inventories in 2018 and 2016.

14.	EQUITY METHOD INVESTMENTS

	Ownership as of		Carrying value at
	December 31,		December 31,
(Dollars in millions)	2018		2018				2017
R&M
Watson Cogeneration Company	51%		$	84			$	—
Other			121				104
R&M Total			$	205			$	104
Retail
PFJ Southeast LLC	29%		$	341			$	328
Retail Total			$	341			$	328
Midstream
Andeavor Logistics Rio Pipeline LLC	67%		$	181			$	—
Centrahoma Processing LLC	40%		160				121
Crowley Coastal Partners, LLC	50%		190				188
Illinois Extension Pipeline Company, L.L.C	35%		275				284
LOOP LLC	51%		282				282
MarEn Bakken Company LLC	25%		498				520
MarkWest EMG Jefferson Dry Gas Gathering Company, L.L.C.	67%		236				164
MarkWest Utica EMG	56%		2,039				2,139
Minnesota Pipe Line Company, LLC	17%		197				—
Rendezvous Gas Services, L.L.C.	78%		248				—
Sherwood Midstream Holdings LLC(a)	60%		157				165
Sherwood Midstream LLC	50%		366				236
Other			523				256
Midstream Total			$	5,352			$	4,355
Total			$	5,898			$	4,787

(a)	Excludes Sherwood Midstream LLC’s investment in Sherwood Midstream Holdings LLC.

Summarized financial information for all equity method investments in affiliated companies, combined, was as follows:

(In millions)	2018				2017				2016
Income statement data:
Revenues and other income	$	7,726			$	6,235			$	2,421
Income (loss) from operations	1,375				1,075				(116		)
Net income (loss)	1,242				922				(250		)
Balance sheet data – December 31:
Current assets	$	1,443			$	860
Noncurrent assets	12,408				10,854
Current liabilities	1,857				547
Noncurrent liabilities	1,788				1,714

As of December 31, 2018, the carrying value of our equity method investments was $1.59 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 $721 million of excess related to goodwill and non-depreciable assets.

Dividends and partnership distributions received from equity method investees (excluding distributions that represented a return of capital previously contributed) were $519 million, $391 million and $317 million in 2018, 2017 and 2016.

15.	PROPERTY, PLANT AND EQUIPMENT

(In millions)	Estimated Useful Lives		December 31,
2018				2017
Refining & Marketing	4 - 30 years		$	27,590			$	19,490
Retail	4 - 25 years		6,637				5,358
Midstream	3 - 51 years		25,692				14,898
Corporate and Other	4 - 40 years		1,294				792
Total			61,213				40,538
Less accumulated depreciation			16,155				14,095
Property, plant and equipment, net			$	45,058			$	26,443

Property, plant and equipment includes gross assets acquired under capital leases of $786 million and $602 million at December 31, 2018 and 2017, respectively, with related amounts in accumulated depreciation of $202 million and $248 million at December 31, 2018 and 2017. Property, plant and equipment includes construction in progress of $3.49 billion and $2.20 billion at December 31, 2018 and 2017, respectively, which primarily relates to capital projects at our refineries and midstream facilities.

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 reporting unit. In 2018 and 2017, our annual testing did not indicate any impairment of goodwill.

The changes in the carrying amount of goodwill for 2017 and 2018 were as follows:

(In millions)	Refining & Marketing				Retail				Midstream				Total
Balance at January 1, 2017	$	519			$	792			$	2,276			$	3,587
Disposition	—				(1		)		—				(1		)
Balance at December 31, 2017	$	519			$	791			$	2,276			$	3,586
Acquisitions	4,717				4,050				7,831				16,598
Transfer of assets related to dropdowns	(216		)		—				216				—
Balance at December 31, 2018	$	5,020			$	4,841			$	10,323			$	20,184

The 2018 increase in goodwill resulted mainly from the acquisition of Andeavor. The goodwill represents the value expected to be created by optimization of crude supply, a nationwide retail and marketing platform, diversification of our refining and midstream footprints and optimization of information systems and business processes. As discussed in Note 5, this goodwill is based on our preliminary determination of the fair value of assets acquired and liabilities assumed in the Andeavor acquisition. We will complete a final determination of the fair value of certain assets and liabilities and an allocation of the resulting goodwill to our reporting units within one year from the acquisition.

Intangible Assets

Our finite-lived intangible assets as of December 31, 2018 and 2017 are as shown below. The increases in 2018 reflect preliminary estimates for customer contracts and relationships as well as brand rights and tradenames acquired in the the Andeavor acquisition.

	December 31, 2018												December 31, 2017
(In millions)	Gross				Accumulated Amortization				Net				Gross				Accumulated Amortization				Net
Customer contracts and relationships	$	3,184			$	261			$	2,923			$	654			$	139			$	515
Brand rights and tradenames	208				33				175				25				24				1
Royalty agreements	129				70				59				129				63				66
Other	190				33				157				84				35				49
Total	$	3,711			$	397			$	3,314			$	892			$	261			$	631

At December 31, 2018 and 2017, we had indefinite-lived intangible assets of $94 million and $95 million, respectively, which are primarily emission allowance credits and trademarks.

Amortization expense for 2018 and 2017 was $134 million and $52 million, respectively. Estimated future amortization expense related to the intangible assets at December 31, 2018 is as follows:

(In millions)
2019		$	387
2020		385
2021		379
2022		378
2023		361

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, 2018 and 2017 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.

	December 31, 2018
	Fair Value Hierarchy
(In millions)	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	$	370			$	31			$	—			$	(323	)		$	78			$	2
Total assets at fair value	$	370			$	31			$	—			$	(323	)		$	78			$	2
Commodity derivative instruments, liabilities	$	255			$	37			$	—			$	(284	)		$	8			$	—
Embedded derivatives in commodity contracts	—				—				61				—				61				—
Total liabilities at fair value	$	255			$	37			$	61			$	(284	)		$	69			$	—

	December 31, 2017
	Fair Value Hierarchy
(In millions)	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	$	127			$	—			$	—			$	(118	)		$	9			$	8
Other assets	3				—				—				N/A				3				—
Total assets at fair value	$	130			$	—			$	—			$	(118	)		$	12			$	8
Commodity derivative instruments, liabilities	$	126			$	—			$	2			$	(126	)		$	2			$	—
Embedded derivatives in commodity contracts	—				—				64				—				64				—
Total liabilities at fair value	$	126			$	—			$	66			$	(126	)		$	66			$	—

(a)	Represents the impact of netting assets, liabilities and cash collateral when a legal right of offset exists. As of December 31, 2018, cash collateral of $52 million was netted with mark-to-market derivative assets and $13 million was netted with mark-to-market liabilities. As of December 31, 2017, cash collateral of $8 million was netted with mark-to-market derivative liabilities.

(b)	We have no derivative contracts which are subject to master netting arrangements reflected gross on the balance sheet.

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.

Level 2 instruments are valued based on quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices, such as liquidity, that are observable for the asset or liability. Commodity derivatives in Level 2 are OTC contracts, which are valued using market quotations from independent price reporting agencies, third-party brokers and commodity exchange price curves that are corroborated with market data.

Level 3 instruments are 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, 2018 used significant unobservable inputs including: (1) NGL prices interpolated and extrapolated due to inactive markets ranging from $0.58 to $1.01 per gallon and (2) the probability of renewal of 90 percent for the first five-year term and 80 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. Increases or decreases in the fractionation spread result in an increase or decrease in the fair value of the embedded derivative liability. An increase in the probability of renewal would result in an increase in the fair value of the related embedded derivative liability.

The following is a reconciliation of the net beginning and ending balances recorded for net liabilities classified as Level 3 in the fair value hierarchy.

(In millions)	2018				2017
Beginning balance	$	66			$	190
Contingent consideration payment	—				(131		)
Unrealized and realized losses included in net income	3				25
Settlements of derivative instruments	(8		)		(18		)
Ending balance	$	61			$	66
The amount of total losses for the period included in earnings attributable to the change in unrealized losses relating to assets still held at the end of period:
Derivative instruments	$	8			$	8
Contingent consideration agreement	—				1
Total	$	8			$	9

See Note 18 for the income statement impacts of our derivative instruments.

Fair Values – Nonrecurring

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.

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 is in the process of disposing of these assets.

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.

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 2016 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 2016 interim goodwill impairment test will prove to be an accurate prediction of the future.

Fair Values – Reported

We believe the carrying value of our other financial instruments, including cash and cash equivalents, receivables, accounts payable and certain accrued liabilities approximate fair value. Our fair value assessment incorporates a variety of considerations, including the short-term duration of the instruments and the expected insignificance of bad debt expense, which includes an evaluation of counterparty credit risk. The borrowings under our revolving credit facilities, which include variable interest rates, approximate fair value. The fair value of our fixed rate long-term debt is based on prices from recent trade activity and is categorized in level 3 of the fair value hierarchy. The carrying and fair values of our debt were approximately $27.0 billion and $26.5 billion at December 31, 2018, respectively, and approximately $12.6 billion and $13.9 billion at December 31, 2017, respectively. These carrying and fair values of our debt exclude the unamortized issuance costs which are netted against our total debt.

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.

The following table presents the fair value of derivative instruments as of December 31, 2018 and 2017 and the line items in the balance sheets in which the fair values are reflected. The fair value amounts below are presented on a gross basis and do not reflect the netting of asset and liability positions permitted under the terms of our master netting arrangements including cash collateral on deposit with, or received from, brokers. We offset the recognized fair value amounts for multiple derivative instruments executed with the same counterparty in our financial statements when a legal right of offset exists. As a result, the asset and liability amounts below will not agree with the amounts presented in our consolidated balance sheets.

(In millions)	December 31, 2018
Balance Sheet Location	Asset				Liability
Commodity derivatives
Other current assets	$	400			$	283
Other current liabilities(a)	1				16
Deferred credits and other liabilities(a)	—				54

(In millions)	December 31, 2017
Balance Sheet Location	Asset				Liability
Commodity derivatives
Other current assets	$	127			$	126
Other current liabilities(a)	—				14
Deferred credits and other liabilities(a)	—				52

(a)	Includes embedded derivatives.

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 and (6) the purchase of natural gas.

The table below summarizes open commodity derivative contracts for crude oil, refined products and blending products as of December 31, 2018.

	Percentage of contracts that expire next quarter		Position
(Units in thousands of barrels)		Long			Short
Exchange-traded(a)
Crude oil	71.5%		40,257			44,709
Refined products	75.9%		10,210			11,149
Blending products	70.3%		5,194			7,356
OTC
Crude oil	—%		880			—
Blending products	24.1%		2,480			2,480

(a)	Included in exchange-traded are spread contracts in thousands of barrels: Crude oil - 7,470 long and 6,800 short; Refined products - 450 long and 450 short; Blending products - 2,678 long and 2,767 short

The following table summarizes the effect of all commodity derivative instruments in our consolidated statements of income:

(In millions)	Gain (Loss)
Income Statement Location	2018				2017				2016
Sales and other operating revenues	$	13			$	5			$	(13	)
Cost of revenues	(59		)		(26		)		(167		)
Total	$	(46	)		$	(21	)		$	(180	)

19.	DEBT

Our outstanding borrowings at December 31, 2018 and 2017 consisted of the following:

	December 31,
(In millions)	2018				2017
Marathon Petroleum Corporation:
Commercial paper	$	—			$	—
364-day bank revolving credit facility due September 2019	—				—
Trade receivables securitization facility due July 2019	—				—
Bank revolving credit facility due October 2023	—				—
Senior notes, 2.700% due December 2018	—				600
Senior notes, 3.400% due December 2020	650				650
Senior notes, 5.125% due March 2021	1,000				1,000
Senior notes, 5.375% due October 2022	337				—
Senior notes, 4.750% due December 2023	614				—
Senior notes, 5.125% due April 2024	241				—
Senior notes, 3.625%, due September 2024	750				750
Senior notes, 5.125% due December 2026	719				—
Senior notes, 3.800% due April 2028	496				—
Senior notes, 6.500% due March 2041	1,250				1,250
Senior notes, 4.750% due September 2044	800				800
Senior notes, 5.850% due December 2045	250				250
Senior notes, 4.500% due April 2048	498				—
Andeavor senior notes, 3.800% - 5.375% due 2022 - 2048	469				—
Senior notes, 5.000%, due September 2054	400				400
Capital lease obligations due 2019-2033	629				356

	December 31,
(In millions)	2018				2017
Notes payable	11				—
MPLX LP:
MPLX bank revolving credit facility due 2022	—				505
MPLX senior notes, 5.500% due February 2023	—				710
MPLX senior notes, 3.375% due March 2023	500				—
MPLX senior notes, 4.500% due July 2023	989				989
MPLX senior notes, 4.875% due December 2024	1,149				1,149
MPLX senior notes, 4.000% due February 2025	500				500
MPLX senior notes, 4.875% due June 2025	1,189				1,189
MarkWest senior notes, 4.500% - 5.500% due 2023 - 2025	23				63
MPLX senior notes, 4.125% due March 2027	1,250				1,250
MPLX senior notes, 4.000% due March 2028	1,250				—
MPLX senior notes, 4.800% due February 2029	750				—
MPLX senior notes, 4.500% due April 2038	1,750				—
MPLX senior notes, 5.200% due March 2047	1,000				1,000
MPLX senior notes, 4.700% due April 2048	1,500				—
MPLX senior notes, 5.500% due February 2049	1,500				—
MPLX senior notes, 4.900% due April 2058	500				—
MPLX capital lease obligations due 2020	6				7
ANDX LP:
ANDX revolving and dropdown credit facilities due 2021	1,245				—
ANDX senior notes, 5.500% due October 2019	500				—
ANDX senior notes, 6.250% due October 2022	300				—
ANDX senior notes, 3.500% due December 2022	500				—
ANDX senior notes, 6.375% due May 2024	450				—
ANDX senior notes, 5.250% due January 2025	750				—
ANDX senior notes, 4.250% due December 2027	750				—
ANDX senior notes, 5.200% due December 2047	500				—
ANDX capital lease obligations	15				—
Total	27,980				13,418
Unamortized debt issuance costs	(128		)		(59		)
Unamortized (discount) premium, net	(328		)		(413		)
Amounts due within one year	(544		)		(624		)
Total long-term debt due after one year	$	26,980			$	12,322

Principal maturities for our debt obligations and capital lease obligations as of December 31, 2018 for the next five years were as follows:

(In millions)
2019	$	544
2020	695
2021	2,296
2022	1,320
2023	2,403

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 2018, we had no borrowings or repayments under the commercial paper program. At December 31, 2018, we had no amounts outstanding under the commercial paper program.

MPC Revolving Credit Agreements

On August 28, 2018, we entered into credit agreements with a syndicate of lenders to replace MPC’s previous five-year $2.5 billion bank revolving credit facility due in 2022 and our previous 364-day $1 billion bank revolving agreement that expired in July 2018. The new credit agreements, which became effective October 1, 2018 in connection with the Andeavor acquisition, provide for a $5 billion five-year revolving credit agreement that expires in 2023 (“new MPC five-year credit agreement”) and a $1 billion 364-day revolving credit agreement that expires in 2019 (“new MPC 364-day credit agreement” and together with the new MPC five-year credit agreement, the “new MPC credit agreements”).

MPC has an option under the new MPC five-year credit agreement to increase the aggregate commitments by up to an additional $1 billion, subject to, among other conditions, the consent of the lenders whose commitments would be increased. In addition, MPC may request up to two one-year extensions of the maturity date of the new MPC five-year credit agreement subject to, among other conditions, the consent of lenders holding a majority of the commitments, provided that the commitments of any non-consenting lenders will terminate on the then-effective maturity date. The new MPC five-year credit agreement includes sub-facilities for swing-line loans of up to $250 million and letters of credit of up to $2.2 billion (which may be increased to up to $3 billion upon receipt of additional letter of credit issuing commitments).

Borrowings under the MPC credit agreements bear interest, at our election, at either the Adjusted LIBO Rate or the Alternate Base Rate (both as defined in the new MPC credit agreements), plus an applicable margin. We are charged various fees and expenses under the MPC credit agreements, including administrative agent fees, commitment fees on the unused portion of the commitments and fees related to issued and outstanding letters of credit. The applicable margin to the benchmark interest rates and the commitment fees payable under the MPC credit agreements fluctuate based on changes, if any, to our credit ratings.

The MPC credit agreements 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 that requires us to maintain a ratio of Consolidated Net Debt to Total Capitalization (each as defined in the MPC credit agreements) of no greater than 0.65 to 1.00 as of the last day of each fiscal quarter. The covenants also restrict, among other things, our ability and/or the ability of certain of our subsidiaries to incur debt, create liens on assets or enter into transactions with affiliates. As of December 31, 2018, we were in compliance with the covenants contained in the MPC credit agreements.

There were no borrowings and $32 million of letters of credit outstanding at December 31, 2018.

Trade Receivables Securitization Facility

On December 18, 2013, we entered into a trade receivables securitization facility (“trade receivables facility”) with a group of committed purchasers and letter of credit issuers evidenced by a receivables purchase agreement and receivables sales agreement. On July 20, 2016, we amended our trade receivables securitization 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 reflected 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 sell 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 qualifying 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 are reflected as debt on our consolidated balance sheet. We remain responsible for servicing the receivables sold to the purchasing group. TRC pays floating-rate interest charges and usage fees on amounts outstanding under the trade receivables facility, if any, unused fees on the portion of unused commitments and certain other fees related to the administration of the facility and letters of credit that are issued and outstanding under the trade receivables facility.

The receivables purchase agreement and receivables sale agreement contain 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. As of December 31, 2018, we were in compliance with the covenants contained in the receivables purchase agreement and receivables sale agreement.

There were no borrowings or letters of credit outstanding under the trade receivables facility as of December 31, 2018. As of December 31, 2018, qualified trade receivables supported borrowings and letter of credit issuances of $750 million.

MPC Senior Notes

As a result of the completion of the Andeavor acquisition, we assumed an aggregate principal amount of $3.374 billion senior notes issued by Andeavor. On October 2, 2018, approximately $2.905 billion aggregate principal amount of Andeavor’s outstanding senior notes were exchanged for new unsecured senior notes issued by MPC having the same maturity and interest rates as the Andeavor senior notes and cash in an exchange offer and consent solicitation undertaken by MPC and Andeavor.

The new MPC senior notes consist of approximately $337 million aggregate principal amount of 5.375 percent senior notes due October 1, 2022, approximately $614 million aggregate principal amount of 4.750 percent senior notes due December 15, 2023, approximately $241 million aggregate principal amount of 5.125 percent senior notes due April 1, 2024, approximately $719 million aggregate principal amount of 5.125 percent senior notes due December 15, 2026, approximately $496 million aggregate principal amount of 3.800 percent senior notes due April 1, 2028 and approximately $498 million aggregate principal amount of 4.500 percent senior notes due April 1, 2048.

After giving effect to the exchange offer and consent solicitation referred to above, as of December 31, 2018, Andeavor had outstanding approximately $138 million aggregate principal amount of 5.375 percent senior notes due October 1, 2022, approximately $236 million aggregate principal amount of 4.750 percent senior notes due December 15, 2023, approximately $59 million aggregate principal amount of 5.125 percent senior notes due April 1, 2024, approximately $30 million aggregate principal amount of 5.125 percent senior notes due December 15, 2026, approximately $4 million aggregate principal amount of 3.800 percent senior notes due April 1, 2028 and approximately $2 million aggregate principal amount of 4.500 percent senior notes due April 1, 2048.

Interest on each series of senior notes is payable semi-annually in arrears. The MPC senior notes are unsecured and unsubordinated obligations of MPC and rank equally with all of MPC’s other existing and future unsecured and unsubordinated indebtedness. The MPC senior notes are non-recourse and structurally subordinated to the indebtedness of our subsidiaries, including the outstanding indebtedness of Andeavor, MPLX and ANDX. The Andeavor senior notes are unsecured, unsubordinated obligations of Andeavor and are non-recourse to MPC and any of MPC’s subsidiaries other than Andeavor.

On March 15, 2018, we redeemed all of the $600 million outstanding aggregate principal amount of our 2.700 percent senior notes due on December 14, 2018. The 2018 senior notes were redeemed at a price equal to par plus a make whole premium, plus accrued and unpaid interest. The make whole premium of $2.5 million was calculated based on the market yield of the applicable treasury issue as of the redemption date as determined in accordance with the indenture governing the 2018 senior notes.

MPLX Credit Agreement

On July 21, 2017, MPLX entered into a credit agreement with a syndicate of lenders to replace MPLX’s previous $2 billion five-year bank revolving credit facility with a $2.25 billion five-year bank revolving credit facility that expires in July 2022 (“MPLX credit agreement”).

The MPLX credit agreement includes letter of credit issuing capacity of up to approximately $222 million and swingline loan capacity of up to $100 million. The revolving borrowing capacity may be increased by up to an additional $500 million, subject to certain conditions, including the consent of the lenders whose commitments would increase.

Borrowings under the MPLX credit agreement bear interest, at MPLX’s election, at the Adjusted LIBO Rate or the Alternate Base Rate (both as defined in the MPLX credit agreement) plus an applicable 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 commitments 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 based on changes, if any, to MPLX’s credit ratings.

The MPLX credit agreement contains 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. The covenants also restrict, among other things, MPLX’s ability and/or the ability of certain of its subsidiaries to incur debt, create liens on assets and enter into transactions with affiliates. As of December 31, 2018, MPLX was in compliance with the covenants contained in the MPLX credit agreement.

During 2018, MPLX borrowed $1.410 billion under the bank revolving credit facility, at an average interest rate of 3.464 percent, per annum, and repaid $1.915 billion of these borrowings. As of December 31, 2018, 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 $2.25 billion.

MPLX Term Loan

On January 2, 2018, MPLX entered into a term loan agreement with a syndicate of lenders providing for a $4.1 billion, 364-day term loan facility. MPLX drew the entire amount of the term loan facility in a single borrowing to fund the cash portion of the consideration for the February 1, 2018 dropdown. On February 8, 2018, MPLX used $4.1 billion of the net proceeds from the issuance of MPLX senior notes to repay the 364-day term-loan facility.

MPLX Senior Notes

On November 15, 2018, MPLX issued $2.25 billion in aggregate principal amount of senior notes in a public offering, consisting of $750 million aggregate principal amount of 4.800 percent unsecured senior notes due February 2029 and $1.5 billion aggregate principal amount of 5.500 percent unsecured senior notes due February 2049. On December 10, 2018, a portion of the net proceeds from the offering was used to redeem the $750 million in aggregate principal amount of 5.500 percent unsecured notes due February 2023 issued by MPLX and MarkWest. These notes were redeemed at 101.833 percent of the principal amount, plus the write off of unamortized deferred financing costs, resulting in a loss on extinguishment of debt of $60 million. The remaining net proceeds have or will be used to repay borrowings under MPLX’s revolving credit facility and intercompany loan agreement with MPC and for general partnership purposes.

On February 8, 2018, MPLX issued $5.5 billion in aggregate principal amount of senior notes in a public offering, consisting of $500 million aggregate principal amount of 3.375 percent unsecured senior notes due March 2023, $1.25 billion aggregate principal amount of 4.000 percent unsecured senior notes due March 2028, $1.75 billion aggregate principal amount of 4.500 percent unsecured senior notes due April 2038, $1.5 billion aggregate principal amount of 4.700 percent unsecured senior notes due April 2048, and $500 million aggregate principal amount of 4.900 percent unsecured senior notes due April 2058. On February 8, 2018, $4.1 billion of the net proceeds were used to repay the 364-day term-loan facility. The remaining proceeds were used to repay outstanding borrowings under MPLX’s revolving credit facility and intercompany loan agreement with MPC and for general partnership purposes.

Interest on each series of MPLX senior notes is payable semi-annually in arrears. The MPLX senior notes are unsecured, unsubordinated obligations of MPLX and are non-recourse to MPC and its subsidiaries other than MPLX and MPLX GP LLC, as the general partner of MPLX.

ANDX Credit Agreements

ANDX is party to a $1.1 billion revolving credit facility and a $1.0 billion dropdown credit agreement, both of which expire in January 2021 (together, the “ANDX credit agreements”). The ANDX credit agreements are unsecured, but are guaranteed by substantially all of ANDX’s subsidiaries.

The ANDX revolving credit facility includes letter of credit issuing capacity of up to $300 million and swingline loan capacity of up to $50 million. The aggregate borrowing capacity under the ANDX credit agreements may be increased by up to an additional $500 million, subject to certain conditions, including the receipt of additional lender commitments.

Borrowings under the ANDX credit agreements bear interest, at ANDX’s election, at LIBOR or the Base Rate (as defined in the ANDX credit agreements) plus an applicable margin. ANDX is charged various fees and expenses in connection with the agreement, including administrative agent fees, commitment fees on the unused portion of the commitments 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 ANDX credit agreements fluctuate based on changes, if any, to ANDX’s credit ratings.

The ANDX credit agreements contain 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 ANDX to maintain a Consolidated Leverage Ratio (as defined in the ANDX credit agreements) 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 used to calculate the Consolidated Leverage Ratio is subject to adjustments for certain acquisitions completed and capital projects undertaken during the relevant period. The covenants also restrict, among other things, ANDX’s ability and/or the ability of certain of its subsidiaries to incur debt, create liens on assets and enter into transactions with affiliates. As of December 31, 2018, ANDX was in compliance with the covenants contained in the ANDX credit agreements.

On December 20, 2018, ANDX amended the ANDX credit agreements to, among other things, revise the affirmative and negative covenants and events of default to be commensurate with those customarily contained in investment-grade credit facilities of a similar type and nature. Specifically, among other things, the amendments (i) granted additional flexibility to ANDX and its subsidiaries to create liens and incur indebtedness, subject to the Consolidated Leverage Ratio covenant described above, (ii) remove restrictions on the ability of ANDX and its subsidiaries to make investments and (iii) granted additional flexibility to ANDX and its subsidiaries to enter into acquisitions, sell or dispose of assets and enter into related party transactions. In addition, the amendments made certain legal and technical updates to the ANDX credit agreements, including the removal of collateral and security provisions that are no longer applicable and changes to reflect MPC’s acquisition of Andeavor. The amendments did not impact the borrowing capacity available to ANDX or the interest rates and other fees payable by ANDX under the Credit Agreements.

During the fourth quarter of 2018, ANDX borrowed $760 million under the ANDX credit facilities, at an average interest rate of 4.460 percent and repaid $635 million of these borrowings. As of December 31, 2018, ANDX had $1,245 million outstanding borrowings under the ANDX credit facilities, resulting in total unused loan availability of $855 million.

ANDX Senior Notes

As of December 31, 2018, ANDX had $3.750 billion aggregate principal amount of senior notes outstanding. The ANDX senior notes consist of $500 million aggregate principal amount of 5.500 percent senior notes due October 15, 2019, $500 million aggregate principal amount of 3.500 percent senior notes due December 1, 2022, $300 million aggregate principal amount of 6.250 percent senior notes due October 15, 2022, $450 million aggregate principal amount of 6.375 percent senior notes due May 1, 2024, $750 million aggregate principal amount of 5.250 percent senior notes due January 15, 2025, $750 million aggregate principal amount of 4.250 percent senior notes due December 1, 2027 and $500 million aggregate principal amount of 5.200 percent senior notes due December 1, 2047.

Interest on each series of ANDX senior notes is payable semi-annually in arrears. The ANDX senior notes are unsecured, unsubordinated obligations of ANDX and are non-recourse to MPC and its subsidiaries other than ANDX and Tesoro Logistics GP, LLC, as the general partner of ANDX.

20.	SUPPLEMENTAL CASH FLOW INFORMATION

(In millions)	2018				2017				2016
Net cash provided by operating activities included:
Interest paid (net of amounts capitalized)	$	887			$	525			$	478
Net income taxes paid to taxing authorities	424				904				140
Non-cash investing and financing activities:
Capital leases	$	172			$	71			$	—
Contribution of assets to joint venture(a)	—				337				273
Intangible asset acquired	—				45				—
Acquisition:
Fair value of MPC shares issued	19,766				—				—
Fair value of converted equity awards	203				—				—

(a)	2017 includes MPLX’s contribution of assets to Sherwood Midstream and Sherwood Midstream Holdings. 2016 includes Speedway’s contribution of travel plaza locations to new joint venture with Pilot Flying J. See Note 5.

(In millions)	December 31, 2018				December 31, 2017
Cash and cash equivalents	$	1,687			$	3,011
Restricted cash(a)	38				4
Cash, cash equivalents and restricted cash(b)	$	1,725			$	3,015

(a)	The restricted cash balance is included within other current assets on the consolidated balance sheets.

(b)	As a result of the adoption of ASU 2016-18, the consolidated statements of cash flows now explain the change during the period of both cash and cash equivalents and restricted cash.

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)	2018				2017				2016
Additions to property, plant and equipment per the consolidated statements of cash flows	$	3,578			$	2,732			$	2,892
Asset retirement expenditures(a)	8				2				6
Increase (decrease) in capital accruals	309				67				(127		)
Total capital expenditures	$	3,895			$	2,801			$	2,771

(a)	Included in All other, net – Operating activities on the consolidated statements of cash flows.

21. ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table shows the changes in accumulated other comprehensive loss by component.

(In millions)	Pension Benefits				Other Benefits				Gain on Cash Flow Hedge				Workers Compensation				Total
Balance as of December 31, 2016	$	(233	)		$	(7	)		$	4			$	2			$	(234	)
Other comprehensive income (loss) before reclassifications	12				(38		)		—				3				(23		)
Amounts reclassified from accumulated other comprehensive loss:
Amortization – prior service credit(a)	(39		)		(3		)		—				—				(42		)
– actuarial loss(a)	36				(2		)		—				—				34
– settlement loss(a)	52				—				—				—				52
Other	—				—				—				(2		)		(2		)
Tax effect	(18		)		2				—				—				(16		)
Other comprehensive income (loss)	43				(41		)		—				1				3
Balance as of December 31, 2017	$	(190	)		$	(48	)		$	4			$	3			$	(231	)

(In millions)	Pension Benefits				Other Benefits				Gain on Cash Flow Hedge				Workers Compensation				Total
Balance as of December 31, 2017	$	(190	)		$	(48	)		$	4			$	3			$	(231	)
Other comprehensive income (loss) before reclassifications	14				27				(1		)		9				49
Amounts reclassified from accumulated other comprehensive loss:
Amortization – prior service credit(a)	(33		)		(3		)		—				—				(36		)
– actuarial loss(a)	31				(1		)		—				—				30
– settlement loss(a)	53				—				—				—				53
Other	—				—				(1		)		(5		)		(6		)
Tax effect	(7		)		2				—				2				(3		)
Other comprehensive income (loss)	58				25				(2		)		6				87
Balance as of December 31, 2018	$	(132	)		$	(23	)		$	2			$	9			$	(144	)

(a)	These accumulated other comprehensive loss components are included in the computation of net periodic benefit cost. See Note 22.

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 employees in our Retail segment 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.

In connection with the Andeavor acquisition, we assumed a number of additional noncontributory benefit pension plans, covering substantially all former Andeavor employees. Benefits under these plans are determined based on final average compensation and years of service through December 31, 2010 and a cash balance formula for service beginning January 1, 2011. These plans were frozen as of December 31, 2018. We also assumed a number of additional postretirement benefits covering eligible employees. These benefits were merged with our existing benefits beginning January 1, 2019.

Obligations and Funded Status

The accumulated benefit obligation for all defined benefit pension plans was $2,632 million and $2,008 million as of December 31, 2018 and 2017.

The following summarizes our defined benefit pension plans that have accumulated benefit obligations in excess of plan assets.

	December 31,
(In millions)	2018				2017
Projected benefit obligations	$	2,779			$	2,164
Accumulated benefit obligations	2,632				2,008
Fair value of plan assets	2,089				1,840

The following summarizes the projected benefit obligations and funded status for our defined benefit pension and other postretirement plans:

	Pension Benefits								Other Benefits
(In millions)	2018				2017				2018				2017
Change in benefit obligations:
Benefit obligations at January 1	$	2,164			$	2,024			$	826			$	740
Service cost	159				132				30				25
Interest cost	83				75				30				30
Actuarial (gain) loss	(159		)		150				(71		)		61
Benefits paid	(273		)		(217		)		(36		)		(30		)
Plan amendments	(90		)		—				34				—
Acquisitions	895				—				71				—
Benefit obligations at December 31	2,779				2,164				884				826
Change in plan assets:
Fair value of plan assets at January 1	1,840				1,659				—				—
Actual return on plan assets	(115		)		270				—				—
Employer contributions	115				128				36				30
Benefits paid from plan assets	(273		)		(217		)		(36		)		(30		)
Acquisitions	522				—				—				—
Fair value of plan assets at December 31	2,089				1,840				—				—
Funded status of plans at December 31	$	(690	)		$	(324	)		$	(884	)		$	(826	)
Amounts recognized in the consolidated balance sheets:
Current liabilities	$	(21	)		$	(18	)		$	(44	)		$	(33	)
Noncurrent liabilities	(669		)		(306		)		(840		)		(793		)
Accrued benefit cost	$	(690	)		$	(324	)		$	(884	)		$	(826	)
Pretax amounts recognized in accumulated other comprehensive loss:(a)
Net actuarial loss	$	517			$	537			$	9			$	80
Prior service cost (credit)	(295		)		(238		)		35				(3		)

(a)	Amounts exclude those related to LOOP and Explorer, equity method investees with defined benefit pension and postretirement plans for which net losses of $18 million and less than $1 million were recorded in accumulated other comprehensive loss in 2018, reflecting our ownership share.

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.

	Pension Benefits												Other Benefits
(In millions)	2018				2017				2016				2018				2017				2016
Components of net periodic benefit cost:
Service cost	$	159			$	132			$	114			$	30			$	25			$	32
Interest cost	83				75				73				30				30				35
Expected return on plan assets	(109		)		(100		)		(98		)		—				—				—
Amortization – prior service credit	(33		)		(39		)		(46		)		(3		)		(3		)		(3		)
– actuarial (gain) loss	31				36				38				(1		)		(2		)		2
– settlement loss	53				52				7				—				—				—
Net periodic benefit cost(a)	$	184			$	156			$	88			$	56			$	50			$	66
Other changes in plan assets and benefit obligations recognized in other comprehensive loss (pretax):
Actuarial (gain) loss	$	64			$	(20	)		$	(33	)		$	(71	)		$	61			$	(101	)
Prior service cost (credit)	(90		)		—				—				34				—				—
Amortization of actuarial gain (loss)	(84		)		(88		)		(45		)		1				2				(2		)
Amortization of prior service credit	33				39				46				3				3				3
Other	—				—				—				—				—				—
Total recognized in other comprehensive loss	$	(77	)		$	(69	)		$	(32	)		$	(33	)		$	66			$	(100	)
Total recognized in net periodic benefit cost and other comprehensive loss	$	107			$	87			$	56			$	23			$	116			$	(34	)

(a)	Net periodic benefit cost reflects a calculated market-related value of plan assets which recognizes changes in fair value over three years.

Lump sum payments to employees retiring in 2018, 2017 and 2016 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 2018, 2017 and 2016 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 2019 are $18 million and $45 million, respectively. The estimated amount that will be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2019 is less than $1 million for both the net actuarial gain and prior service credit for our other defined benefit postretirement plans.

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 2018, 2017 and 2016.

	Pension Benefits									Other Benefits
	2018			2017			2016			2018			2017			2016
Weighted-average assumptions used to determine benefit obligation:
Discount rate	4.21	%		3.55	%		3.90	%		4.26	%		3.70	%		4.25	%
Rate of compensation increase	5.00	%		5.00	%		5.00	%		5.00	%		5.00	%		5.00	%
Weighted-average assumptions used to determine net periodic benefit cost:
Discount rate	3.88	%		3.85	%		3.80	%		3.72	%		4.25	%		4.50	%
Expected long-term return on plan assets	6.15	%		6.50	%		6.50	%		—	%		—	%		—	%
Rate of compensation increase	4.80	%		5.00	%		5.00	%		5.00	%		5.00	%		5.00	%

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.

	December 31,
	2018			2017			2016
Health care cost trend rate assumed for the following year:
Medical: Pre-65	6.80	%		6.75	%		7.00	%
Prescription drugs	9.50	%		8.75	%		9.00	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate):
Medical: Pre-65	4.50	%		4.50	%		4.50	%
Prescription drugs	4.50	%		4.50	%		4.50	%
Year that the rate reaches the ultimate trend rate:
Medical: Pre-65	2027			2026			2026
Prescription drugs	2027			2026			2026

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.

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:

	1-Percentage-				1-Percentage-
(In millions)	Point Increase				Point Decrease
Effect on total of service and interest cost components	$	5			$	(4	)
Effect on other postretirement benefit obligations	34				(30		)

Plan Investment Policies and Strategies

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, 2018, the primary plan’s targeted asset allocation was 42 percent equity, private equity, real estate, and timber securities and 58 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, 2018 and 2017.

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. Other investments classified as Level 1 include mutual funds that are publicly registered, valued at NAV on a daily basis using a market approach.

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, 2018 and 2017.

	December 31, 2018
(In millions)	Level 1				Level 2				Level 3				Total
Cash and cash equivalents	$	—			$	25			$	—			$	25
Equity:
Common stocks	89				86				—				175
Mutual funds	159				—				—				159
Pooled funds	—				297				—				297
Fixed income:
Corporate	176				684				—				860
Government	98				141				—				239
Pooled funds	—				201				—				201
Private equity	—				—				41				41
Real estate	—				—				29				29
Other	45				—				18				63
Total investments, at fair value	$	567			$	1,434			$	88			$	2,089

	December 31, 2017
(In millions)	Level 1				Level 2				Level 3				Total
Cash and cash equivalents	$	—			$	14			$	—			$	14
Equity:
Common stocks	36				—				—				36
Mutual funds	227				—				—				227
Pooled funds	—				507				—				507
Fixed income:
Corporate	—				673				1				674
Government	—				98				—				98
Pooled funds	—				176				—				176
Private equity	—				—				51				51
Real estate	—				—				34				34
Other	2				2				19				23
Total investments, at fair value	$	265			$	1,470			$	105			$	1,840

The following is a reconciliation of the beginning and ending balances recorded for plan assets classified as Level 3 in the fair value hierarchy:

	2018
(In millions)	Private Equity				Real Estate				Other				Total
Beginning balance	$	51			$	34			$	20			$	105
Actual return on plan assets:
Realized	9				2				—				11
Unrealized	2				(1		)		—				1
Purchases	1				1				—				2
Sales	(22		)		(7		)		(2		)		(31		)
Ending balance	$	41			$	29			$	18			$	88

	2017
(In millions)	Private Equity				Real Estate				Other				Total
Beginning balance	$	60			$	39			$	19			$	118
Actual return on plan assets:
Realized	11				3				—				14
Unrealized	(1		)		—				1				—
Purchases	2				1				1				4
Sales	(21		)		(9		)		(1		)		(31		)
Ending balance	$	51			$	34			$	20			$	105

Cash Flows

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 2018, we made pension contributions totaling $115 million. We have no required funding for 2019, 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 $19 million and $44 million, respectively, in 2019.

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)	Pension Benefits				Other Benefits
2019	$	238			$	44
2020	254				46
2021	219				48
2022	218				50
2023	213				51
2024 through 2028	1,048				271

Contributions to defined contribution plans – We also contribute to several defined contribution plans for eligible employees. Contributions to these plans totaled $144 million, $116 million and $113 million in 2018, 2017 and 2016, 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 2018, 2017 and 2016 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 2018 and 2017 is for the plan’s year ended December 31, 2017 and December 31, 2016, 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 2018, 2017 and 2016 contributions. Our portion of the contributions does not make up more than five percent of total contributions to the plan.

				Pension Protection Act Zone Status				FIP/RP Status Pending/Implemented		MPC Contributions (In millions)												Surcharge Imposed		Expiration Date of Collective – Bargaining Agreement
Pension Fund		EIN		2018		2017			2018				2017				2016
Central States, Southeast and Southwest Areas Pension Plan(a)		366044243		Red		Red		Implemented		$	4			$	4			$	4			No		January 31, 2024

(a)	This agreement has a minimum contribution requirement of $328 per week per employee for 2019. A total of 258 employees participated in the plan as of December 31, 2018.

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 2018, 2017 and 2016, 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 Amended and Restated Marathon Petroleum Corporation 2012 Incentive Compensation Plan (“MPC 2012 Plan”). The MPC 2012 Plan authorizes the Compensation Committee of our board of directors (“Committee”) to grant 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”).

In connection with the Andeavor acquisition, in October of 2018 we converted the outstanding option and equity incentive awards (other than awards held by non-employee directors of Andeavor, which awards were paid out in connection with the acquisition) under the Andeavor Plans to awards that provide for rights to acquire (in the case of options) or be settled in or otherwise determined in reference to shares of MPC common stock in place of shares of Andeavor common stock (in the case of equity incentive awards). As part of that conversion we used an exchange ratio for the respective share prices of Andeavor common stock and MPC common stock to ensure that the award holders’ economic opportunity remained constant, and for converted awards which included a performance component, performance was determined at the time of the conversion and the awards became subject to a time-based vesting only design. The converted awards otherwise continue to be subject to the terms and conditions of their award agreements and the applicable Andeavor Plan under which such awards were granted. The “Andeavor Plans” as to which the award conversions apply are: the Tesoro Corporation 2006 Long-Term Incentive Plan; the Andeavor Amended and Restated 2011 Long-Term Incentive Plan; the Andeavor 2018 Long-Term Incentive Plan; and the Amended and Restated Northern Tier Energy LP 2012 Long-Term Incentive 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 2018 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.

Total Stock-Based Compensation Expense

The following table reflects activity related to our stock-based compensation arrangements, including the converted awards related to the acquisition of Andeavor:

(In millions)	2018				2017				2016
Stock-based compensation expense	$	133			$	51			$	45
Tax benefit recognized on stock-based compensation expense	32				19				17
Cash received by MPC upon exercise of stock option awards	24				46				10
Tax benefit received for tax deductions for stock awards exercised	14				25				4

Stock Option Awards

The Black Scholes option-pricing model values used to value stock option awards granted were determined based on the following weighted average assumptions:

	2018				2017				2016
Weighted average exercise price per share	$	67.71			$	50.57			$	35.27
Expected life in years	6.2				6.3				6.2
Expected volatility	34		%		35		%		38		%
Expected dividend yield	3.0		%		3.0		%		3.0		%
Risk-free interest rate	2.7		%		2.1		%		1.4		%
Weighted average grant date fair value of stock option awards granted	$	17.21			$	13.42			$	9.84

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 2018 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 2018:

	Number of of Shares			Weighted Average Exercise Price				Weighted Average Remaining Contractual Terms (in years)		Aggregate Intrinsic Value (in millions)
Outstanding at December 31, 2017	8,465,398			$	33.74
Granted	903,797			67.71
Converted in acquisition	302,403			7.00
Exercised	(916,566	)		26.24
Forfeited or expired	(30,437	)		48.96
Outstanding at December 31, 2018	8,724,595			37.07
Vested and expected to vest at December 31, 2018	8,707,148			37.01				5.1		$	199
Exercisable at December 31, 2018	6,586,859			31.42				4.0		182

The intrinsic value of options exercised by MPC employees during 2018, 2017 and 2016 was $44 million, $75 million and $14 million, respectively.

As of December 31, 2018, unrecognized compensation cost related to stock option awards was $10 million, which is expected to be recognized over a weighted average period of 1.2 years.

Restricted Stock Awards

The following is a summary of restricted stock award activity of our common stock in 2018:

	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, 2017	1,188,662			$	45.07			285,164			$	29.95
Granted	470,951			71.19				24,430			72.43
Converted in acquisition	16,972			82.43				4,452,751			82.43
RS Vested/RSUs Issued	(624,934	)		45.98				(526,254	)		65.34
Forfeited	(60,951	)		50.27				(9,235	)		82.43
Outstanding at December 31, 2018	990,700			57.23				4,226,856			80.96

Of the 4,226,856 restricted stock units outstanding, 1,106,740 are vested and have a weighted average grant date fair value of $76.90. These vested but unissued units are held by our non-employee directors, certain of our officers and certain former officers and employees of Andeavor, are non-forfeitable and are issuable upon the director’s departure from our board of directors or officers end of employment with the company or, for certain former officers and employees of Andeavor, upon the expiration of a waiting period under Section 409A of the Code.

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
2018	$	49			$	71.19			$	39			$	72.43
2017	28				50.25				5				53.19
2016	17				36.17				8				40.85

As of December 31, 2018, unrecognized compensation cost related to restricted stock awards was $35 million, which is expected to be recognized over a weighted average period of 1.2 years. Unrecognized compensation cost related to restricted stock unit awards was $110 million, which is expected to be recognized over a weighted average period of 1.10 years.

Performance Unit Awards

The following table presents a summary of the 2018 activity for performance unit awards to be settled in shares:

	Number of Units			Weighted Average Grant Date Fair Value
Outstanding at December 31, 2017	6,851,542			$	0.81
Granted	3,830,000			0.83
Vested	(2,052,959	)		0.95
Forfeited	(10,000	)		0.92
Outstanding at December 31, 2018	8,618,583			0.79

The number of shares that would be issued upon target vesting, using the closing price of our common stock on December 31, 2018 would be 146,053 shares.

As of December 31, 2018, unrecognized compensation cost related to equity-classified performance unit awards was $3 million, which is expected to be recognized over a weighted average period of 1.3 years.

Performance units to be settled in MPC shares 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:

	2018				2017				2016
Risk-free interest rate	2.3		%		1.5		%		1.0		%
Look-back period (in years)	2.8				2.8				2.8
Expected volatility	34.0		%		36.1		%		34.2		%
Grant date fair value of performance units granted	$	0.83			$	0.92			$	0.57

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 and ANDX Awards

Compensation expense for awards related to MPLX and ANDX was not material to our consolidated financial statements for 2018.

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, 2018, 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)	Capital Lease Obligations				Operating Lease Obligations
2019	$	70			$	709
2020	71				619
2021	66				553
2022	75				389
2023	82				295
Later years	586				858
Total minimum lease payments	950				$	3,423
Less imputed interest costs	301
Present value of net minimum lease payments	$	649

Operating lease rental expense was:

(In millions)	2018				2017				2016
Rental expense	$	546			$	367			$	370

Lessor

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 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 2038 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 2033.

Our revenue from implicit lease arrangements, excluding executory costs, totaled approximately $221 million, $218 million and $246 million in 2018, 2017 and 2016, 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, 2018, we received $10 million in contingent lease payments and $9 million for the year ended December 31, 2017. The following is a schedule of minimum future rentals on the non‑cancellable operating leases as of December 31, 2018:

(In millions)
2019	$	160
2020	159
2021	150
2022	148
2023	142
Later years	1,111
Total minimum lease payments	$	1,870

The following schedule summarizes our investment in assets held for operating lease by major classes as of December 31, 2018:

(In millions)
Natural gas gathering and NGL transportation pipelines and facilities	$	965
Natural gas processing facilities	481
Terminal and related assets	133
Land, building, office equipment and other	43
Construction in progress	19
Property, plant and equipment	1,641
Less accumulated depreciation	219
Total property, plant and equipment	$	1,422

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, 2018 and 2017, accrued liabilities for remediation totaled $455 million and $114 million. The increase in accrued liabilities is mainly a result of assuming environmental obligations in connection with the Andeavor acquisition. 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 $35 million and $45 million at December 31, 2018 and 2017, respectively.

Governmental and other entities in California, New York, Maryland and Rhode Island have filed lawsuits against coal, gas, oil and petroleum companies, including the Company. The lawsuits allege damages as a result of climate change and the plaintiffs are seeking unspecified damages and abatement under various tort theories. Similar lawsuits may be filed in other jurisdictions. At this early stage, the ultimate outcome of these matters remain uncertain, and neither the likelihood of an unfavorable outcome nor the ultimate liability, if any, can be determined.

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.

Litigation Relating to the Acquisition of Andeavor

Between June 20 and July 11, 2018, six putative class actions (the “Actions”) were filed against some or all of Andeavor, the directors of Andeavor, and MPC, Mahi Inc. (“Merger Sub 1”) and Mahi LLC (n/k/a Andeavor LLC) (“Merger Sub 2” and, together with MPC and Merger Sub 1, the “MPC Defendants”), relating to the Andeavor merger. The Actions generally alleged that Andeavor, the directors of Andeavor and the MPC Defendants disseminated a false or misleading registration statement regarding the merger in violation of Section 14(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 14a-9 promulgated thereunder. The Actions further alleged that the directors of Andeavor and/or the MPC Defendants were liable for these violations as “controlling persons” of Andeavor under Section 20(a) of the Exchange Act. The Actions sought injunctive relief, including to enjoin and/or rescind the merger, damages in the event the merger is consummated, and an award of attorneys’ fees, in addition to other relief.

The parties ultimately reached an agreement in principle to resolve the Actions in exchange for supplemental disclosures. Consistent with that agreement, Andeavor and MPC each filed a Current Report on Form 8-K on September 14, 2018 that included certain additional disclosures in response to plaintiffs’ allegations. Between September 21 and September 28, 2018, all the Actions were dismissed as moot, and the parties reserved their rights in the event of any dispute over attorneys’ fees and expenses. In the fourth quarter of 2018, the Company resolved the remaining disputes over attorneys’ fees for an amount that was not material to the Company.

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 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 attorney general amended his complaint to include a request for immediate injunctive relief as well as 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 on our consolidated financial position, results of operations, or cash flows.

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 – MPC and MPLX hold interests in an offshore oil port, LOOP, and MPLX holds an interest in a crude oil pipeline system, LOCAP. Both LOOP and LOCAP have secured various project financings with throughput and deficiency agreements. Under the agreements, MPC, as a shipper, is 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 $171 million as of December 31, 2018.

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, 2018, 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 $128 million as of December 31, 2018.

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, 2018, which consist of unrecognized tax benefits related to MPC, its consolidated subsidiaries and the refining, marketing and transportation 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 to effect 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.

Other guarantees – We have entered into other guarantees with maximum potential undiscounted payments totaling $123 million as of December 31, 2018, which consist primarily of a commitment to contribute cash to an equity method investee for certain catastrophic events 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, 2018 and 2017, our contractual commitments to acquire property, plant and equipment and advance funds to equity method investees totaled $1.8 billion and $484 million.

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.

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

	2018																2017
(In millions, except per share data)	1st Qtr.				2nd Qtr.				3rd Qtr.				4th Qtr.				1st Qtr.				2nd Qtr.				3rd Qtr.				4th Qtr.(a)
Sales and other operating revenues(b)	$	18,866			$	22,317			$	22,988			$	32,333			$	16,288			$	18,180			$	19,210			$	21,055
Income from operations	440				1,711				1,403				2,017				291				982				1,577				1,168
Net income	235				1,235				941				1,195				101				574				1,004				2,125
Net income attributable to MPC	37				1,055				737				951				30				483				903				2,016
Net income attributable to MPC per share(c):
Basic	$	0.08			$	2.30			$	1.63			$	1.38			$	0.06			$	0.94			$	1.79			$	4.13
Diluted	0.08				2.27				1.62				1.35				0.06				0.93				1.77				4.09

(a)	During the fourth quarter of 2017, we recorded a tax benefit of approximately $1.5 billion as a result of remeasuring certain deferred tax liabilities using the lower corporate tax rate enacted under the TCJA.

(b)	Includes sales to related parties. The 2018 periods reflect an election to present certain taxes on a net basis concurrent with our adoption of ASC 606.

(c)	The sum of the per-share amounts for the four quarters may not always equal the annual per-share amounts due to differences in the average number of shares outstanding during the respective periods.