filings.toolsItem 8. Financial Statements and Supplementary Data
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Item 8. Financial Statements and Supplementary Data
INDEX
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/ Michael J. Hennigan | /s/ Maryann T. Mannen | /s/ C. Kristopher Hagedorn | ||||||||||||
| Michael J. Hennigan President and Chief Executive Officer | Maryann T. Mannen Executive Vice President and Chief Financial Officer | C. Kristopher Hagedorn Senior 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 Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). 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, 2022.
The effectiveness of MPC’s internal control over financial reporting as of December 31, 2022 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.
| /s/ Michael J. Hennigan | /s/ Maryann T. Mannen | |||||||||||||
| Michael J. Hennigan President and Chief Executive Officer | Maryann T. Mannen Executive 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, 2022 and 2021, 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, 2022, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 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, 2022, 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.
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.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill Impairment Test - Crude Gathering Reporting Unit
As described in Note 18 to the consolidated financial statements and as disclosed by management, the Company’s consolidated goodwill balance was $8.2 billion as of December 31, 2022, which includes, within the Midstream segment, the goodwill associated with MPLX’s Crude Gathering reporting unit of $1.1 billion. Management annually evaluates goodwill for impairment as of November 30, as well as whenever events or changes in circumstances indicate it is more likely than not that the fair value of a reporting unit with goodwill is less than its carrying amount. The fair value of the MPLX Crude Gathering reporting unit was determined based on applying both a discounted cash flow method (i.e. income approach) as well as a market approach. Significant assumptions that were used to estimate the reporting unit’s fair value under the discounted cash flow method included management’s best estimates of the discount rate, as well as estimates of future cash flows, which are impacted primarily by producer customers’ development plans, which impact future volumes and capital requirements.
The principal considerations for our determination that performing procedures relating to the goodwill impairment test of the Crude Gathering reporting unit of the Midstream segment is a critical audit matter are (i) the significant judgment by management when determining the fair value of the reporting unit; and (ii) the high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence relating to management’s significant assumption related to future volumes.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment test, including controls over the determination of the fair value of the Crude Gathering reporting unit. These procedures also included, among others (i) testing management’s process for determining the fair value of the reporting unit; (ii) evaluating the appropriateness of the income and market approaches used; (iii) testing the completeness and accuracy of underlying data used by management in the approaches; and (iv) evaluating the reasonableness of the significant assumption related to future volumes. Evaluating the assumption related to future volumes involved (i) considering whether the assumption used was reasonable considering past performance of the reporting unit, producer customers’ historical and future production volumes, and industry outlook reports; and (ii) considering whether the assumption was consistent with evidence obtained in other areas of the audit.
/s/ PricewaterhouseCoopers LLP
Toledo, Ohio
February 23, 2023
We have served as the Company’s auditor since 2010.
Marathon Petroleum Corporation
Consolidated Statements of Income
| (In millions, except per share data) | 2022 | 2021 | 2020 | ||||||||||||||
| Revenues and other income: | |||||||||||||||||
| Sales and other operating revenues | $ | 177,453 | $ | 119,983 | $ | 69,779 | |||||||||||
| Income (loss) from equity method investments(a) | 655 | 458 | (935) | ||||||||||||||
| Net gain on disposal of assets | 1,061 | 21 | 70 | ||||||||||||||
| Other income | 783 | 468 | 118 | ||||||||||||||
| Total revenues and other income | 179,952 | 120,930 | 69,032 | ||||||||||||||
| Costs and expenses: | |||||||||||||||||
| Cost of revenues (excludes items below) | 151,671 | 110,008 | 65,733 | ||||||||||||||
| Impairment expense | — | — | 8,426 | ||||||||||||||
| Depreciation and amortization | 3,215 | 3,364 | 3,375 | ||||||||||||||
| Selling, general and administrative expenses | 2,772 | 2,537 | 2,710 | ||||||||||||||
| Restructuring expenses | — | — | 367 | ||||||||||||||
| Other taxes | 825 | 721 | 668 | ||||||||||||||
| Total costs and expenses | 158,483 | 116,630 | 81,279 | ||||||||||||||
| Income (loss) from continuing operations | 21,469 | 4,300 | (12,247) | ||||||||||||||
| Net interest and other financial costs | 1,000 | 1,483 | 1,365 | ||||||||||||||
| Income (loss) from continuing operations before income taxes | 20,469 | 2,817 | (13,612) | ||||||||||||||
| Provision (benefit) for income taxes on continuing operations | 4,491 | 264 | (2,430) | ||||||||||||||
| Income (loss) from continuing operations, net of tax | 15,978 | 2,553 | (11,182) | ||||||||||||||
| Income from discontinued operations, net of tax | 72 | 8,448 | 1,205 | ||||||||||||||
| Net income (loss) | 16,050 | 11,001 | (9,977) | ||||||||||||||
| Less net income (loss) attributable to: | |||||||||||||||||
| Redeemable noncontrolling interest | 88 | 100 | 81 | ||||||||||||||
| Noncontrolling interests | 1,446 | 1,163 | (232) | ||||||||||||||
| Net income (loss) attributable to MPC | $ | 14,516 | $ | 9,738 | $ | (9,826) | |||||||||||
| Per share data (See Note 10) | |||||||||||||||||
| Basic: | |||||||||||||||||
| Continuing operations | $ | 28.17 | $ | 2.03 | $ | (16.99) | |||||||||||
| Discontinued operations | 0.14 | 13.31 | 1.86 | ||||||||||||||
| Net income (loss) per share | $ | 28.31 | $ | 15.34 | $ | (15.13) | |||||||||||
| Weighted average shares outstanding | 512 | 634 | 649 | ||||||||||||||
| Diluted: | |||||||||||||||||
| Continuing operations | $ | 27.98 | $ | 2.02 | $ | (16.99) | |||||||||||
| Discontinued operations | 0.14 | 13.22 | 1.86 | ||||||||||||||
| Net income (loss) per share | $ | 28.12 | $ | 15.24 | $ | (15.13) | |||||||||||
| Weighted average shares outstanding | 516 | 638 | 649 |
(a) 2020 includes impairment expense. See Note 7 for further information.
The accompanying notes are an integral part of these consolidated financial statements.
Marathon Petroleum Corporation
Consolidated Statements of Comprehensive Income
| (Millions of dollars) | 2022 | 2021 | 2020 | ||||||||||||||
| Net income (loss) | $ | 16,050 | $ | 11,001 | $ | (9,977) | |||||||||||
| Defined benefit plans: | |||||||||||||||||
| Actuarial changes, net of tax of $36, $91 and $(51), respectively | 122 | 276 | (157) | ||||||||||||||
| Prior service, net of tax of $(15), $58 and $(11), respectively | (52) | 175 | (34) | ||||||||||||||
| Other, net of tax of $—, $(2) and $—, respectively | (1) | (6) | (1) | ||||||||||||||
| Other comprehensive income (loss) | 69 | 445 | (192) | ||||||||||||||
| Comprehensive income (loss) | 16,119 | 11,446 | (10,169) | ||||||||||||||
| Less comprehensive income (loss) attributable to: | |||||||||||||||||
| Redeemable noncontrolling interest | 88 | 100 | 81 | ||||||||||||||
| Noncontrolling interests | 1,446 | 1,163 | (232) | ||||||||||||||
| Comprehensive income (loss) attributable to MPC | $ | 14,585 | $ | 10,183 | $ | (10,018) |
The accompanying notes are an integral part of these consolidated financial statements.
Marathon Petroleum Corporation
Consolidated Balance Sheets
| December 31, | |||||||||||
| (Millions of dollars, except share data) | 2022 | 2021 | |||||||||
| Assets | |||||||||||
| Cash and cash equivalents | $ | 8,625 | $ | 5,291 | |||||||
| Short-term investments | 3,145 | 5,548 | |||||||||
| Receivables, less allowance for doubtful accounts of $29 and $40, respectively | 13,477 | 11,034 | |||||||||
| Inventories | 8,827 | 8,055 | |||||||||
| Other current assets | 1,168 | 568 | |||||||||
| Total current assets | 35,242 | 30,496 | |||||||||
| Equity method investments | 6,466 | 5,409 | |||||||||
| Property, plant and equipment, net | 35,657 | 37,440 | |||||||||
| Goodwill | 8,244 | 8,256 | |||||||||
| Right of use assets | 1,214 | 1,372 | |||||||||
| Other noncurrent assets | 3,081 | 2,400 | |||||||||
| Total assets | $ | 89,904 | $ | 85,373 | |||||||
| Liabilities | |||||||||||
| Accounts payable | $ | 15,312 | $ | 13,700 | |||||||
| Payroll and benefits payable | 967 | 911 | |||||||||
| Accrued taxes | 1,140 | 1,231 | |||||||||
| Debt due within one year | 1,066 | 571 | |||||||||
| Operating lease liabilities | 368 | 438 | |||||||||
| Other current liabilities | 1,167 | 1,047 | |||||||||
| Total current liabilities | 20,020 | 17,898 | |||||||||
| Long-term debt | 25,634 | 24,968 | |||||||||
| Deferred income taxes | 5,904 | 5,638 | |||||||||
| Defined benefit postretirement plan obligations | 1,114 | 1,015 | |||||||||
| Long-term operating lease liabilities | 841 | 927 | |||||||||
| Deferred credits and other liabilities | 1,304 | 1,346 | |||||||||
| Total liabilities | 54,817 | 51,792 | |||||||||
| Commitments and contingencies (see Note 29) | |||||||||||
| Redeemable noncontrolling interest | 968 | 965 | |||||||||
| Equity | |||||||||||
| Preferred stock, no shares issued and outstanding (par value $0.01 per share, 30 million shares authorized) | — | — | |||||||||
| Common stock: | |||||||||||
| Issued – 990 million and 984 million shares (par value $0.01 per share, 2 billion shares authorized) | 10 | 10 | |||||||||
| Held in treasury, at cost – 536 million and 405 million shares | (31,841) | (19,904) | |||||||||
| Additional paid-in capital | 33,402 | 33,262 | |||||||||
| Retained earnings | 26,142 | 12,905 | |||||||||
| Accumulated other comprehensive income (loss) | 2 | (67) | |||||||||
| Total MPC stockholders’ equity | 27,715 | 26,206 | |||||||||
| Noncontrolling interests | 6,404 | 6,410 | |||||||||
| Total equity | 34,119 | 32,616 | |||||||||
| Total liabilities, redeemable noncontrolling interest and equity | $ | 89,904 | $ | 85,373 |
The accompanying notes are an integral part of these consolidated financial statements.
Marathon Petroleum Corporation
Consolidated Statements of Cash Flows
| (Millions of dollars) | 2022 | 2021 | 2020 | ||||||||||||||
| Operating activities: | |||||||||||||||||
| Net income (loss) | $ | 16,050 | $ | 11,001 | $ | (9,977) | |||||||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||||||||
| Amortization of deferred financing costs and debt discount | 50 | 79 | 69 | ||||||||||||||
| Impairment expense | — | — | 8,426 | ||||||||||||||
| Depreciation and amortization | 3,215 | 3,364 | 3,375 | ||||||||||||||
| Pension and other postretirement benefits, net | 172 | (499) | 220 | ||||||||||||||
| Deferred income taxes | 290 | (169) | (241) | ||||||||||||||
| Net gain on disposal of assets | (1,061) | (21) | (70) | ||||||||||||||
| (Income) loss from equity method investments | (655) | (458) | 935 | ||||||||||||||
| Distributions from equity method investments | 772 | 652 | 577 | ||||||||||||||
| Income from discontinued operations | (72) | (8,448) | (1,205) | ||||||||||||||
| Changes in income tax receivable | (555) | 2,089 | (1,807) | ||||||||||||||
| Changes in the fair value of derivative instruments | (147) | 16 | 45 | ||||||||||||||
| Changes in: | |||||||||||||||||
| Current receivables | (2,315) | (5,299) | 1,465 | ||||||||||||||
| Inventories | (787) | (33) | 1,750 | ||||||||||||||
| Current accounts payable and accrued liabilities | 1,909 | 6,260 | (2,927) | ||||||||||||||
| Right of use assets and operating lease liabilities, net | — | 3 | (19) | ||||||||||||||
| All other, net | (547) | (153) | 191 | ||||||||||||||
| Cash provided by operating activities - continuing operations | 16,319 | 8,384 | 807 | ||||||||||||||
| Cash provided by (used in) operating activities - discontinued operations | 42 | (4,024) | 1,612 | ||||||||||||||
| Net cash provided by operating activities | 16,361 | 4,360 | 2,419 | ||||||||||||||
| Investing activities: | |||||||||||||||||
| Additions to property, plant and equipment | (2,420) | (1,464) | (2,787) | ||||||||||||||
| Acquisitions, net of cash acquired | (413) | — | — | ||||||||||||||
| Disposal of assets | 90 | 153 | 150 | ||||||||||||||
| Investments – acquisitions and contributions | (405) | (210) | (485) | ||||||||||||||
| – redemptions, repayments and return of capital | 515 | 39 | 137 | ||||||||||||||
| Purchases of short-term investments | (6,023) | (12,498) | — | ||||||||||||||
| Sales of short-term investments | 1,296 | 1,544 | — | ||||||||||||||
| Maturities of short-term investments | 7,159 | 5,406 | — | ||||||||||||||
| All other, net | 824 | 513 | 63 | ||||||||||||||
| Cash provided by (used in) investing activities - continuing operations | 623 | (6,517) | (2,922) | ||||||||||||||
| Cash provided by (used in) investing activities - discontinued operations | — | 21,314 | (335) | ||||||||||||||
| Net cash provided by (used in) investing activities | 623 | 14,797 | (3,257) | ||||||||||||||
| Financing activities: | |||||||||||||||||
| Commercial paper – issued | — | 7,414 | 2,055 | ||||||||||||||
| – repayments | — | (8,437) | (1,031) | ||||||||||||||
| Long-term debt – borrowings | 3,379 | 12,150 | 17,082 | ||||||||||||||
| – repayments | (2,280) | (17,400) | (15,380) | ||||||||||||||
| Debt issuance costs | (39) | — | (50) |
| (Millions of dollars) | 2022 | 2021 | 2020 | ||||||||||||||
| Issuance of common stock | 243 | 106 | 11 | ||||||||||||||
| Common stock repurchased | (11,922) | (4,654) | — | ||||||||||||||
| Dividends paid | (1,279) | (1,484) | (1,510) | ||||||||||||||
| Distributions to noncontrolling interests | (1,214) | (1,449) | (1,244) | ||||||||||||||
| Repurchases of noncontrolling interests | (491) | (630) | (33) | ||||||||||||||
| All other, net | (44) | (35) | (35) | ||||||||||||||
| Net cash used in financing activities | (13,647) | (14,419) | (135) | ||||||||||||||
| Net change in cash, cash equivalents and restricted cash | $ | 3,337 | $ | 4,738 | $ | (973) | |||||||||||
| Cash, cash equivalents and restricted cash balances:****(a) | |||||||||||||||||
| Continuing operations - beginning of year | 5,294 | 416 | 1,395 | ||||||||||||||
| Discontinued operations - beginning of year | — | 140 | 134 | ||||||||||||||
| Less: Discontinued operations - end of year | — | — | 140 | ||||||||||||||
| Continuing operations - end of year | $ | 8,631 | $ | 5,294 | $ | 416 |
(a) Restricted cash is included in other current assets on our consolidated balance sheets.
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 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Shares in millions; amounts in millions of dollars) | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2019 | 978 | $ | 10 | (329) | $ | (15,143) | $ | 33,157 | $ | 15,990 | $ | (320) | $ | 8,445 | $ | 42,139 | $ | 968 | ||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | (9,826) | — | (232) | (10,058) | 81 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared on common stock ($2.32 per share) | — | — | — | — | — | (1,514) | — | — | (1,514) | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | — | — | (1,163) | (1,163) | (81) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | — | (192) | — | (192) | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 2 | — | — | (14) | 92 | — | — | 8 | 86 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity transactions of MPLX | — | — | — | — | (41) | — | — | (5) | (46) | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2020 | 980 | $ | 10 | (329) | $ | (15,157) | $ | 33,208 | $ | 4,650 | $ | (512) | $ | 7,053 | $ | 29,252 | $ | 968 | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 9,738 | — | 1,163 | 10,901 | 100 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared on common stock ($2.32 per share) | — | — | — | — | — | (1,483) | — | — | (1,483) | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | — | — | (1,349) | (1,349) | (100) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | 445 | — | 445 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares repurchased | — | — | (76) | (4,740) | — | — | — | — | (4,740) | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 4 | — | — | (7) | 147 | — | — | 4 | 144 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity transactions of MPLX | — | — | — | — | (93) | — | — | (461) | (554) | (3) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2021 | 984 | $ | 10 | (405) | $ | (19,904) | $ | 33,262 | $ | 12,905 | $ | (67) | $ | 6,410 | $ | 32,616 | $ | 965 | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 14,516 | — | 1,446 | 15,962 | 88 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared on common stock ($2.49 per share) | — | — | — | — | — | (1,279) | — | — | (1,279) | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | — | — | (1,129) | (1,129) | (85) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | 69 | — | 69 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares repurchased | — | — | (131) | (11,933) | — | — | — | — | (11,933) | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 6 | — | — | (4) | 260 | — | — | 4 | 260 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity transactions of MPLX | — | — | — | — | (120) | — | — | (327) | (447) | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2022 | 990 | $ | 10 | (536) | $ | (31,841) | $ | 33,402 | $ | 26,142 | $ | 2 | $ | 6,404 | $ | 34,119 | $ | 968 |
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. We sell refined products to wholesale marketing customers domestically and internationally, to buyers on the spot market and to independent entrepreneurs who operate branded outlets. We also sell transportation fuel to consumers through direct dealer locations under long-term supply contracts. MPC’s midstream operations are primarily conducted through MPLX LP (“MPLX”), which owns and operates crude oil and light product transportation and logistics infrastructure as well as gathering, processing and fractionation assets. We own the general partner and a majority limited partner interest in MPLX.
On May 14, 2021, we completed the sale of Speedway, our company-owned and operated retail transportation fuel and convenience store business, to 7-Eleven, Inc. (“7-Eleven”). Speedway’s results are reported separately as discontinued operations, net of tax, in our consolidated statements of income for all periods presented. In addition, we separately disclosed the operating and investing cash flows of Speedway as discontinued operations within our consolidated statements of cash flow. See Note 5 for discontinued operations disclosures.
Refer to Notes 6 and 12 for additional information about our operations.
Basis of Presentation
All significant intercompany transactions and accounts have been eliminated.
In accordance with ASC 205, Discontinued Operations, intersegment sales from our Refining & Marketing segment to Speedway are no longer eliminated as intercompany transactions and are now presented within sales and other operating revenues, since we continue to supply fuel to Speedway subsequent to the sale to 7-Eleven. All periods presented have been retrospectively adjusted through the sale date of May 14, 2021 to reflect this change. Additionally, from August 2, 2020 through May 14, 2021, in accordance with ASC 360, Property, Plant, and Equipment, we ceased recording depreciation and amortization for Speedway’s PP&E, finite-lived intangible assets and right of use lease assets.
2. Summary of Principal Accounting Policies
Principles Applied in Consolidation
These consolidated financial statements include the accounts of our majority-owned, controlled subsidiaries and MPLX. As of December 31, 2022, we owned the general partner and approximately 65 percent of the outstanding MPLX common units. Due to our ownership of the general partner interest, we have determined that we control MPLX and therefore we consolidate MPLX and record a noncontrolling interest for the interest owned by the public. Changes in ownership interest in consolidated subsidiaries that do not result in a change in control are recorded as equity transactions.
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 any 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. Actual results could differ from those estimates.
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. 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.
Our revenue recognition patterns are described below by reportable segment:
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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.
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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 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 23 for disclosure of our revenue disaggregated by segment and product line and to Note 12 for 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.
Short-Term Investments
Investments with a maturity date greater than three months that we intend to convert to cash or cash equivalents within a year or less are classified as short-term investments in our consolidated balance sheets. Additionally, in accordance with ASC 320, Investments - Debt Securities, we have classified all short-term investments as available-for-sale securities and changes in fair market value are reported in other comprehensive income.
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 150 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.
Leases
Contracts with a term greater than one year that convey the right to direct the use of and obtain substantially all of the economic benefit of an asset are accounted for as right of use assets.
Right of use asset and lease liability balances are recorded at the commencement date at present value of the fixed lease payments using a secured incremental borrowing rate with a maturity similar to the lease term because our leases do not provide implicit rates. We have elected to include both lease and non-lease components in the present value of the lease payments for all lessee asset classes with the exception of our marine and third-party contractor service equipment leases. The lease component of the payment for the marine and equipment asset classes is determined using a relative standalone selling price. See Note 28 for additional disclosures about our lease contracts.
As a lessor under ASU No. 2016-02, Leases (“ASC 842”), MPLX may be required to re-classify existing operating leases to sales-type leases upon modification and related reassessment of the leases. See Note 28 for further information regarding our ongoing evaluation of the impacts of lease reassessments as modifications occur. The net investment in sales-type leases is recorded within receivables, net and other noncurrent assets on the consolidated balance sheets. These amounts are comprised of the present value of the sum of the future minimum lease payments representing the value of the lease receivable and the unguaranteed residual value of the lease assets. Management assesses the net investment in sales-type leases for recoverability quarterly.
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 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.
Fair Value
We account for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:
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Level 1 – inputs are based upon unadjusted quoted prices for identical instruments in active markets. Our Level 1 derivative assets and liabilities include 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.
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Level 2 – inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, credit spreads, and forward and spot prices for currencies. Our Level 2 investments include commercial paper, certificates of deposit, time deposits and corporate notes and bonds. Our Level 2 derivative assets and liabilities primarily include certain OTC contracts.
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Level 3 – inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models. Our Level 3 assets and liabilities include goodwill, long-lived assets and intangible assets, when they are recorded at fair value due to an impairment charge and an embedded derivative liability relates to a natural gas purchase agreement embedded in a keep‑whole processing agreement. Unobservable inputs used in the models are significant to the fair values of the assets and liabilities.
Derivative Instruments
We use derivatives to economically hedge a portion of our exposure to commodity price risk and, historically, to interest rate risk. Our use of selective derivative instruments that assume market risk is limited. 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, (6) the purchase of natural gas and (7) the purchase of soybean oil. 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, generally 10 to 40 years for refining and midstream assets, 25 years for office buildings and 4 to 7 years for other miscellaneous fixed assets. 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 at the reporting unit level 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. If we determine, based on a qualitative assessment, that it is not more likely than not that a reporting unit’s fair value is less than its carrying amount, no further impairment testing is required. If we do not perform a qualitative assessment or if that assessment indicates that further impairment testing is required, the fair value of each reporting unit is determined using an income and/or market approach which is compared to the carrying value of the reporting unit. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss would be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The fair value under the income approach is calculated using the expected present value of future cash flows method. Significant assumptions used in the cash flow forecasts include future volumes, discount rates, and future capital requirements.
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, 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.
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, 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.
Share-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 share-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 share-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 deficiency 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 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 state programs, 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 assets or other noncurrent assets on the consolidated balance sheets, 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 liabilities or deferred credits and other liabilities on the consolidated balance sheets, 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 consolidated statements of income. Any gains or losses on the sale or expiration of allowances or credits are classified as other income on the consolidated statements of income. Proceeds from the sale of allowances or credits are reported in investing activities - all other, net on the consolidated statements of cash flow.
3. Accounting Standards
Recently Adopted
We adopted the following ASU during 2022, which did not have a material impact to our financial statements or financial statement disclosures:
| ASU | Effective Date | ||||||||||
| 2021-10 | Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance | January 1, 2022 |
4. Short-Term Investments
Investments Components
The components of investments were as follows:
| December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||
| (Millions of dollars) | Fair Value Level | Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | Cash and Cash Equivalents | Short-term Investments | |||||||||||||||||||||||||||||||||||||
| Available-for-sale debt securities | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial paper | Level 2 | $ | 3,074 | $ | — | $ | (1) | $ | 3,073 | $ | 1,106 | $ | 1,967 | |||||||||||||||||||||||||||||||
| Certificates of deposit and time deposits | Level 2 | 2,093 | — | — | 2,093 | 1,500 | 593 | |||||||||||||||||||||||||||||||||||||
| U.S. government securities | Level 1 | 1,071 | — | — | 1,071 | 498 | 573 | |||||||||||||||||||||||||||||||||||||
| Corporate notes and bonds | Level 2 | 66 | — | — | 66 | 54 | 12 | |||||||||||||||||||||||||||||||||||||
| Total available-for-sale debt securities | $ | 6,304 | $ | — | $ | (1) | $ | 6,303 | $ | 3,158 | $ | 3,145 | ||||||||||||||||||||||||||||||||
| Cash | 5,467 | 5,467 | — | |||||||||||||||||||||||||||||||||||||||||
| Total | $ | 11,770 | $ | 8,625 | $ | 3,145 |
| December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||
| (Millions of dollars) | Fair Value Level | Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | Cash and Cash Equivalents | Short-term Investments | |||||||||||||||||||||||||||||||||||||
| Available-for-sale debt securities | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial paper | Level 2 | $ | 4,905 | $ | — | $ | (1) | $ | 4,904 | $ | 868 | $ | 4,036 | |||||||||||||||||||||||||||||||
| Certificates of deposit and time deposits | Level 2 | 2,024 | — | — | 2,024 | 750 | 1,274 | |||||||||||||||||||||||||||||||||||||
| U.S. government securities | Level 1 | 28 | — | — | 28 | — | 28 | |||||||||||||||||||||||||||||||||||||
| Corporate notes and bonds | Level 2 | 271 | — | — | 271 | 61 | 210 | |||||||||||||||||||||||||||||||||||||
| Total available-for-sale debt securities | $ | 7,228 | $ | — | $ | (1) | $ | 7,227 | $ | 1,679 | $ | 5,548 | ||||||||||||||||||||||||||||||||
| Cash | 3,612 | 3,612 | — | |||||||||||||||||||||||||||||||||||||||||
| Total | $ | 10,839 | $ | 5,291 | $ | 5,548 |
Our investment policy includes concentration limits and credit rating requirements which limits our investments to high quality, short term and highly liquid securities.
Unrealized losses on debt investments held from May 14, 2021, which coincides with the sale of Speedway, to December 31, 2022 were not material. Realized gains/losses were not material. All of our available-for-sale debt securities held as of December 31, 2022 mature within one year or less or are readily available for use.
5. Discontinued Operations
On May 14, 2021, we completed the sale of Speedway, our company-owned and operated retail transportation fuel and convenience store business, to 7-Eleven for cash proceeds of approximately $21.38 billion. After-tax proceeds were approximately $17.22 billion. This transaction resulted in a pretax gain of $11.68 billion ($8.02 billion after income taxes) after deducting the book value of the net assets and certain other adjustments.
The transaction provided for adjustments for working capital and other miscellaneous items, which were finalized with 7-Eleven in the fourth quarter of 2022, resulting in an additional pretax gain of $60 million.
Results of operations for Speedway are reflected through the close of the sale. The following table presents Speedway results and the gain on sale as reported in income from discontinued operations, net of tax, within our consolidated statements of income.
| (Millions of dollars) | 2022 | 2021 | 2020 | ||||||||||||||
| Revenues, other income and net gain on disposal of assets: | |||||||||||||||||
| Revenues and other income | $ | — | $ | 8,420 | $ | 19,919 | |||||||||||
| Net gain on disposal of assets | 60 | 11,682 | 1 | ||||||||||||||
| Total revenues, other income and net gain on disposal of assets | 60 | 20,102 | 19,920 | ||||||||||||||
| Costs and expenses: | |||||||||||||||||
| Cost of revenues (excludes items below) | — | 7,654 | 17,573 | ||||||||||||||
| Depreciation and amortization | — | 3 | 244 | ||||||||||||||
| Selling, general and administrative expenses | — | 121 | 323 | ||||||||||||||
| Other taxes | — | 75 | 193 | ||||||||||||||
| Total costs and expenses | — | 7,853 | 18,333 | ||||||||||||||
| Income from operations | 60 | 12,249 | 1,587 | ||||||||||||||
| Net interest and other financial costs | — | 6 | 20 | ||||||||||||||
| Income before income taxes | 60 | 12,243 | 1,567 | ||||||||||||||
| Provision (benefit) for income taxes | (12) | 3,795 | 362 | ||||||||||||||
| Income from discontinued operations, net of tax | $ | 72 | $ | 8,448 | $ | 1,205 |
Fuel Supply Agreements
During the second quarter of 2021, we entered into various 15-year fuel supply agreements through which we continue to supply fuel to Speedway.
6. Master Limited Partnership
We own the general partner and a majority limited partner interest in MPLX, which owns and operates crude oil and light product transportation and logistics infrastructure as well as gathering, processing and fractionation assets. We control MPLX through our ownership of the general partner interest and, as of December 31, 2022, we owned approximately 65 percent of the outstanding MPLX common units.
Unit Repurchase Program
On November 2, 2020, MPLX announced the board authorization of a unit repurchase program for the repurchase of up to $1.0 billion of MPLX’s outstanding common units held by the public, which was exhausted during the fourth quarter of 2022. On August 2, 2022, MPLX announced its board of directors approved an incremental $1.0 billion unit repurchase authorization. The unit repurchase authorizations have no expiration date. MPLX may utilize various methods to effect the repurchases, which could include open market repurchases, negotiated block transactions, accelerated unit repurchases, tender offers or open market solicitations for units, 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 unit repurchases were as follows for the respective periods:
| (In millions, except per share data) | 2022 | 2021 | 2020 | ||||||||||||||
| Number of common units repurchased | 15 | 23 | 1 | ||||||||||||||
| Cash paid for common units repurchased | $ | 491 | $ | 630 | $ | 33 | |||||||||||
| Average cost per unit | $ | 31.96 | $ | 27.52 | $ | 22.29 |
As of December 31, 2022, MPLX had approximately $846 million remaining under its unit repurchase authorizations.
Redemption of Business from MPLX
On July 31, 2020, Western Refining Southwest, Inc. (now known as Western Refining Southwest LLC) (“WRSW”), a wholly owned subsidiary of MPC, entered into a Redemption Agreement (the “Redemption Agreement”) with MPLX, pursuant to which
MPLX transferred to WRSW all of the outstanding membership interests in Western Refining Wholesale, LLC, (“WRW”) in exchange for the redemption of MPLX common units held by WRSW. The transaction effected the transfer to MPC of the Western wholesale distribution business that MPLX acquired as a result of its acquisition of Andeavor Logistics LP (“ANDX”). Beginning in the third quarter of 2020, the results of these operations are presented in MPC’s Refining & Marketing segment.
At the closing, per the terms of Redemption Agreement, MPLX redeemed 18,582,088 MPLX common units (the “Redeemed Units”) held by WRSW. The number of Redeemed Units was calculated by dividing WRW’s aggregate valuation of $340 million by the simple average of the volume weighted average NYSE prices of an MPLX common unit for the ten trading days ending at market close on July 27, 2020. The transaction resulted in a minor decrease in MPC’s ownership interest in MPLX.
Series B Preferred Units
As of December 31, 2022, MPLX had 600,000 preferred units (“Series B preferred units) representing limited partner interests of MPLX and having a liquidation value of $1,000 per unit. On February 15, 2023, MPLX exercised its right to redeem all of the Series B preferred units at the redemption price of $1,000 per unit.
The Series B preferred units are included in noncontrolling interests on our consolidated balance sheets.
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. With certain exceptions, these agreements generally contain minimum volume commitments. These transactions are eliminated in consolidation but are reflected as intersegment transactions between our Refining & Marketing and Midstream segments. 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 Corporate and Midstream segments.
Noncontrolling Interest
As a result of equity transactions of MPLX, 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 were as follows:
| (Millions of dollars) | 2022 | 2021 | 2020 | ||||||||||||||
| Decrease due to change in ownership | $ | (164) | $ | (166) | $ | (27) | |||||||||||
| Tax impact | 44 | 73 | (14) | ||||||||||||||
| Decrease in MPC's additional paid-in capital, net of tax | $ | (120) | $ | (93) | $ | (41) |
7. Impairments
During 2021, we recognized $69 million of impairment expense within our Midstream segment related to the divestiture, abandonment or closure of certain assets as detailed in the table below.
During the first quarter of 2020, the outbreak of COVID-19 caused overall deterioration in the economy and the environment in which we operate. The related changes to our expected future cash flows, as well as a sustained decrease in share price, were considered triggering events requiring the performance of various tests of the carrying values of our assets. Triggering events requiring the performance of various tests of the carrying value of our Midstream assets were also identified by MPLX as a result of the overall deterioration in the economy and the environment in which MPLX and its customers operate, which led to a reduction in forecasted volumes processed by the systems operated by MarkWest Utica EMG, L.L.C., MPLX’s equity method investee, as well as a sustained decrease in the MPLX unit price. These tests resulted in the majority of the impairment charges in 2020, as discussed below.
The table below provides information related to the impairments recognized, along with the location of these impairments within the consolidated statements of income.
| (Millions of dollars) | Income Statement Line | 2022 | 2021 | 2020 | ||||||||||||||||
| Goodwill | Impairment expense | $ | — | $ | — | $ | 7,394 | |||||||||||||
| Equity method investments | Income (loss) from equity method investments | — | 13 | 1,315 | ||||||||||||||||
| Long-lived assets | Impairment expense(a) | — | — | 1,032 | ||||||||||||||||
| Long-lived assets | Depreciation and amortization | — | 56 | — | ||||||||||||||||
| Total impairments | $ | — | $ | 69 | $ | 9,741 |
(a)The amount of 2020 impairment expense not described in the narrative below is related to certain immaterial Midstream assets.
Goodwill
During the first quarter of 2020, we recorded an impairment of goodwill of $7.33 billion. The goodwill impairment within the Refining & Marketing segment was primarily driven by the effects of the COVID-19 pandemic and the decline in commodity prices. The impairment within the Midstream segment was primarily driven by additional information related to the slowing of drilling activity, which reduced production growth forecasts from MPLX’s producer customers.
During the third quarter of 2020, we recorded an impairment of goodwill of $64 million. The $64 million of goodwill was transferred from our Midstream segment to our Refining & Marketing segment during the third quarter of 2020 in connection with the transfer to MPC of the MPLX wholesale distribution business as described in Note 6. The transfer required goodwill impairment tests for the transferor and transferee reporting units. Our Refining & Marketing reporting unit that recorded the $64 million impairment expense has no remaining goodwill.
The fair values of the reporting units for the first quarter of 2020 goodwill impairment analysis were determined based on applying both a discounted cash flow method, or income approach, as well as a market approach. The discounted cash flow fair value estimate is based on known or knowable information at the measurement date. The significant assumptions that were used to develop the estimates of the fair values under the discounted cash flow method included management’s best estimates of the expected future results and discount rates, which range from 9.0 percent to 13.5 percent across all reporting units. Significant assumptions that were used to estimate the MPLX Eastern Gathering and Processing and MPLX Crude Gathering reporting units’ fair values under the discounted cash flow method included management’s best estimates of the discount rate, as well as estimates of future cash flows, which are impacted primarily by producer customer’s development plans, which impact future volumes and capital requirements. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of the interim goodwill impairment test will prove to be an accurate prediction of the future. The fair value measurements for the individual reporting units’ overall fair values represent Level 3 measurements.
Equity Method Investments
During the first quarter of 2020, we recorded equity method investment impairment charges totaling $1.32 billion, of which $1.25 billion related to MarkWest Utica EMG, L.L.C. and its investment in Ohio Gathering Company, L.L.C. The impairments were largely due to a reduction in forecasted volumes gathered and processed by the systems operated by the equity method investments. The fair value of the investments were determined based upon applying a discounted cash flow method, an income 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 cash flows, including prices and volumes, the weighted average cost of capital and the long-term growth rate. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of the impairment test will prove to be an accurate prediction of the future. The fair value of these equity method investments represents a Level 3 measurement.
Long-lived Assets
Long-lived assets (primarily consisting of property, plant and equipment, intangible assets other than goodwill, and right of use assets) used in operations are assessed for impairment whenever changes in facts and circumstances indicate that the carrying value of the assets may not be recoverable based on the expected undiscounted future cash flow of an asset group. For purposes of impairment evaluation, long-lived assets must be grouped at the lowest level for which independent cash flows can be identified, which generally is the refinery and associated distribution system level for Refining & Marketing segment assets and the plant level or pipeline system level for Midstream segment assets. If the sum of the undiscounted estimated pretax cash flows is less than the carrying value of an asset group, fair value is determined, and the carrying value is written down to the determined fair value.
During the first quarter of 2020, we identified long-lived asset impairment triggers relating to all of our refinery asset groups within the Refining & Marketing segment as a result of decreases to the Refining & Marketing segment expected future cash flows. The cash flows associated with these assets were significantly impacted by the effects of the COVID-19 pandemic and commodity price declines. We performed recoverability tests for each refinery asset group by comparing the undiscounted estimated pretax cash flows to the carrying value of each asset group. Only the Gallup refinery’s carrying value exceeded its undiscounted estimated pretax cash flows. It was determined that the fair value of the Gallup refinery’s property, plant and equipment was less than the carrying value. As a result, we recorded a charge of $142 million in the first quarter of 2020 to impairment expense on the consolidated statements of income. The fair value measurements for the Gallup refinery assets represent Level 3 measurements.
During the second quarter of 2020, we identified long-lived asset impairment triggers relating to all of our refinery asset groups within the Refining & Marketing segment, except the Gallup refinery as it had been impaired to its estimated salvage value in the first quarter, as a result of continued unfavorable macroeconomic conditions impacting the Refining & Marketing segment expected future cash flows. We performed recoverability tests for each refinery asset group by comparing the undiscounted estimated pretax cash flows to the carrying value of each asset group. All of these refinery asset groups’ undiscounted estimated pretax cash flows exceeded their carrying value by at least 17 percent.
The determination of undiscounted estimated pretax cash flows for the first and second quarter refinery asset group recoverability tests utilized significant assumptions including management’s best estimates of the expected future cash flows, allocation of certain Refining & Marketing segment cash flows to the individual refinery asset groups, the estimated useful life of certain refinery asset groups, and the estimated salvage value of certain refinery asset groups.
On August 3, 2020, we announced our plans to evaluate possibilities to strategically reposition our Martinez refinery, including the potential conversion of the refinery into a renewable diesel facility. The facility is expected to ramp up to producing 730 million gallons per year by the end of 2023, with pretreatment capabilities coming online in 2023. As a result of the progression of these activities, we identified assets that would be repurposed and utilized in a renewable diesel facility configuration and assets that would be abandoned since they had no function in a renewable diesel facility configuration. This change in our intended use for the Martinez refinery is a long-lived asset impairment trigger for the assets that would be repurposed and remain as part of the Martinez asset group. We assessed the asset group for impairment by comparing the undiscounted estimated pretax cash flows to the carrying value of the asset group and the undiscounted estimated pretax cash flows exceeded the Martinez asset group carrying value. We recorded impairment expense of $342 million for the abandoned assets as we are no longer using these assets and have no expectation to use these assets in the future. Additionally, as a result of our efforts to progress the conversion of Martinez refinery into a renewable diesel facility, MPLX cancelled in-process capital projects related to its Martinez refinery logistics operations resulting in impairments of $27 million in the third quarter of 2020.
In the fourth quarter of 2020, we concluded the evaluation of our intended use of MPLX terminal assets near the Gallup refinery and determined that the assets were abandoned, resulting in an impairment charge of $67 million. Following this conclusion, we revised the estimate of the salvage value for the Gallup refinery asset group resulting in an additional $44 million impairment charge. These charges are included in impairment expense on our consolidated statements of income.
The determinations of expected future cash flows and the salvage values of refineries, as described earlier, 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 our impairment analysis will prove to be an accurate prediction of the future. Should our assumptions significantly change in future periods, it is possible we may determine the carrying values of certain of our refinery asset groups exceed the undiscounted estimated pretax cash flows of their refinery asset groups, which would result in future impairment charges.
During the first quarter of 2020, MPLX identified an impairment trigger relating to asset groups within MPLX’s Western Gathering and Processing (“G&P”) reporting unit as a result of significant changes to expected future cash flows for these asset groups resulting from the effects of the COVID-19 pandemic. The cash flows associated with these assets were significantly impacted by volume declines reflecting decreased forecasted producer customer production as a result of lower commodity prices. MPLX assessed each asset group within the Western G&P reporting unit for impairment. It was determined that the fair value of the East Texas G&P asset group’s underlying assets were less than the carrying value. As a result, MPLX recorded impairment charges totaling $350 million related to its property, plant and equipment and intangibles, which are included in impairment expense on our consolidated statements of income. Fair value of property, plant and equipment was determined using a combination of an income and cost approach. The income approach utilized significant assumptions including management’s best estimates of the expected future cash flows and the estimated useful life of the asset group. The cost approach utilized assumptions for the current replacement costs of similar assets adjusted for estimated depreciation and deterioration of the existing equipment and economic obsolescence. The fair value of the intangibles was determined based on applying the multi-period excess earnings method, which is an income approach. Key assumptions included management’s best estimates of the expected future cash flows from existing customers, customer attrition rates and the discount rate. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of the impairment analysis will prove to be an accurate prediction of the future. The fair value measurements for the asset group fair values represent Level 3 measurements.
8. Variable Interest Entities
Consolidated VIE
We control MPLX through our ownership of its general partner. MPLX is a VIE because the limited partners do not have substantive kick-out or participating rights over the general partner. We are the primary beneficiary of MPLX because in addition to our significant economic interest, we also have the ability, through our ownership of the general partner, to control the decisions that most significantly impact MPLX. We therefore consolidate MPLX and record a noncontrolling interest for the interest owned by the public. We also record a redeemable noncontrolling interest related to MPLX’s Series A preferred units.
The creditors of MPLX do not have recourse to MPC’s general credit through guarantees or other financial arrangements, except as noted. MPC has effectively guaranteed certain indebtedness of LOOP LLC (“LOOP”) and LOCAP LLC (“LOCAP”), in which MPLX holds an interest. See Note 29 for more information. The assets of MPLX can only be used to settle its own obligations and its creditors have no recourse to our assets, except as noted earlier.
The following table presents balance sheet information for the assets and liabilities of MPLX, which are included in our consolidated balance sheets.
| (Millions of dollars) | December 31, 2022 | December 31, 2021 | |||||||||
| Assets | |||||||||||
| Cash and cash equivalents | $ | 238 | $ | 13 | |||||||
| Receivables, less allowance for doubtful accounts | 747 | 660 | |||||||||
| Inventories | 148 | 142 | |||||||||
| Other current assets | 56 | 55 | |||||||||
| Equity method investments | 4,095 | 3,981 | |||||||||
| Property, plant and equipment, net | 18,848 | 20,042 | |||||||||
| Goodwill | 7,645 | 7,657 | |||||||||
| Right of use assets | 283 | 268 | |||||||||
| Other noncurrent assets | 1,664 | 891 | |||||||||
| Liabilities | |||||||||||
| Accounts payable | $ | 664 | $ | 671 | |||||||
| Payroll and benefits payable | 4 | 6 | |||||||||
| Accrued taxes | 67 | 75 | |||||||||
| Debt due within one year | 988 | 499 | |||||||||
| Operating lease liabilities | 46 | 59 | |||||||||
| Other current liabilities | 338 | 304 | |||||||||
| Long-term debt | 18,808 | 18,072 | |||||||||
| Deferred income taxes | 13 | 10 | |||||||||
| Long-term operating lease liabilities | 230 | 205 | |||||||||
| Deferred credits and other liabilities | 366 | 559 |
Non-Consolidated VIEs
Martinez Renewables LLC
On September 21, 2022, MPC closed on the formation of the Martinez Renewable Fuels joint venture (the “Martinez Renewable joint venture”) with Neste Corporation (“Neste”). We determined that, as of the closing date, Martinez Renewables LLC is a VIE because the entity does not have sufficient equity to complete the modification of the plant to produce renewable fuels without additional financial support from its owners. 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.
Capline LLC
Capline LLC is unable to fund its operations without financial support from its equity owners and is a VIE. Our maximum exposure to loss as a result of our involvement with Capline LLC includes our equity method investment, any additional capital contribution commitments and any operating expenses incurred by Capline LLC in excess of compensation received for performance of the operating services. 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.
Crowley Coastal Partners
We have determined that Crowley Coastal Partners LLC (“Crowley Coastal Partners”) is a VIE based on the terms of the existing financing arrangement for Crowley Blue Water Partners LLC (“Crowley Blue Water Partners”) and the associated debt guarantee by MPC and Crowley Maritime Corporation. Our maximum exposure to loss includes our equity method investment in Crowley Coastal Partners and the debt guarantees provided to each of the lenders to Crowley Blue Water 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.
MPLX VIEs
For those entities that have been deemed to be VIEs, neither MPLX nor any of its subsidiaries have been deemed to be the primary beneficiary due to voting rights on significant matters. While we have the ability to exercise influence through participation in the management committees which make all significant decisions, we have equal influence over each committee as a joint interest partner and all significant decisions require the consent of the other investors without regard to economic
interest and as such we have determined that these entities should not be consolidated and apply the equity method of accounting with respect to our investments in each entity.
Sherwood Midstream LLC (“Sherwood Midstream”) has been deemed the primary beneficiary of Sherwood Midstream Holdings LLC (“Sherwood Midstream Holdings”) due to its controlling financial interest through its authority to manage the joint venture. As a result, Sherwood Midstream consolidates Sherwood Midstream Holdings.
MPLX’s maximum exposure to loss as a result of its involvement with equity method investments includes its equity investment, any additional capital contribution commitments and any operating expenses incurred by the subsidiary operator in excess of its compensation received for the performance of the operating services.
We account for our ownership interest in each of these investments as an equity method investment. See Note 16 for ownership percentages and investment balances and Note 29 for our exposure to guarantees related to our non-consolidated VIEs.
9. Related Party Transactions
Transactions with related parties were as follows:
| (Millions of dollars) | 2022 | 2021 | 2020 | ||||||||||||||
| Sales to related parties | $ | 144 | $ | 93 | $ | 123 | |||||||||||
| Purchases from related parties | 1,175 | 962 | 738 |
Sales to related parties, which are included in sales and other operating revenues, consist primarily of refined product sales and renewable feedstock sales to certain of our equity affiliates.
Purchases from related parties are included in cost of revenues. We obtain utilities, transportation services and purchase ethanol from certain of our equity affiliates.
10. Earnings Per Share
We compute basic earnings (loss) per share by dividing net income (loss) 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 (loss) per share using the two-class method. Diluted income (loss) per share assumes exercise of certain share-based compensation awards, provided the effect is not anti-dilutive.
| (In millions, except per share data) | 2022 | 2021 | 2020 | ||||||||||||||
| Income (loss) from continuing operations, net of tax | $ | 15,978 | $ | 2,553 | $ | (11,182) | |||||||||||
| Less: Net income (loss) attributable to noncontrolling interest | 1,534 | 1,263 | (151) | ||||||||||||||
| Net income allocated to participating securities | 8 | 2 | 1 | ||||||||||||||
| Income (loss) from continuing operations available to common stockholders | 14,436 | 1,288 | (11,032) | ||||||||||||||
| Income from discontinued operations, net of tax | 72 | 8,448 | 1,205 | ||||||||||||||
| Income (loss) available to common stockholders | $ | 14,508 | $ | 9,736 | $ | (9,827) | |||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||
| Basic | 512 | 634 | 649 | ||||||||||||||
| Effect of dilutive securities | 4 | 4 | — | ||||||||||||||
| Diluted | 516 | 638 | 649 | ||||||||||||||
| (In millions, except per share data) | 2022 | 2021 | 2020 | ||||||||||||||
| Income (loss) available to common stockholders per share: | |||||||||||||||||
| Basic: | |||||||||||||||||
| Continuing operations | $ | 28.17 | $ | 2.03 | $ | (16.99) | |||||||||||
| Discontinued operations | 0.14 | 13.31 | 1.86 | ||||||||||||||
| Net income (loss) per share | $ | 28.31 | $ | 15.34 | $ | (15.13) | |||||||||||
| Diluted: | |||||||||||||||||
| Continuing operations | $ | 27.98 | $ | 2.02 | $ | (16.99) | |||||||||||
| Discontinued operations | 0.14 | 13.22 | 1.86 | ||||||||||||||
| Net income (loss) per share | $ | 28.12 | $ | 15.24 | $ | (15.13) |
The following table summarizes the shares that were anti-dilutive, and therefore, were excluded from the diluted share calculation.
| (In millions) | 2022 | 2021 | 2020 | ||||||||||||||
| Shares issuable under share-based compensation plans | — | 3 | 11 |
11. Equity
We announced our board of directors approved a $5.0 billion share repurchase authorization on February 2, 2022, which was exhausted during the fourth quarter of 2022, and an additional $5.0 billion share repurchase authorization on August 2, 2022. These authorization have no expiration date.
We may utilize various methods to effect the repurchases, which could include open market repurchases, negotiated block transactions, tender offers, 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 suspended or discontinued at any time.
Total share repurchases were as follows for the respective periods:
| (In millions, except per share data) | 2022 | 2021 | 2020 | ||||||||||||||
| Number of shares repurchased | 131 | 76 | — | ||||||||||||||
| Cash paid for shares repurchased | $ | 11,922 | $ | 4,654 | $ | — | |||||||||||
| Average cost per share | $ | 91.20 | $ | 62.65 | $ | — |
As of December 31, 2022, MPC had $3.33 billion remaining under its share repurchase authorizations, which reflects the repurchase of 830,000 common shares for $96 million that settled in the first quarter of 2023.
12. Segment Information
We have two reportable segments: Refining & Marketing and Midstream. Each of these segments is organized and managed based upon the nature of the products and services it offers.
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Refining & Marketing – refines crude oil and other feedstocks, including renewable feedstocks, at our refineries in the Gulf Coast, Mid-Continent and West Coast regions of the United States, purchases refined products and ethanol for resale and distributes refined products, including renewable diesel, 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 independent entrepreneurs who operate primarily Marathon® branded outlets and through long-term fuel supply contracts with direct dealers who operate locations mainly under the ARCO® brand.
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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.
During the first quarter of 2022, our chief operating decision maker (“CODM”) began to evaluate the performance of our segments using segment adjusted EBITDA. We have modified our presentation of segment performance to be consistent with this change, including prior periods presented for consistent and comparable presentation. Amounts included in income (loss) from continuing operations before income taxes and excluded from adjusted EBITDA include: (i) depreciation and amortization; (ii) net interest and other financial costs; (iii) turnaround expenses and (iv) other adjustments as deemed necessary. These items are either: (i) believed to be non-recurring in nature; (ii) not believed to be allocable or controlled by the segment; or (iii) not tied to the operational performance of the segment. Assets by segment are not a measure used to assess the performance of the company by the CODM and thus are not reported in our disclosures.
| (Millions of dollars) | 2022 | 2021 | 2020 | ||||||||||||||
| Segment adjusted EBITDA for reportable segments | |||||||||||||||||
| Refining & Marketing | 19,261 | $ | 3,518 | $ | (1,939) | ||||||||||||
| Midstream | 5,772 | 5,410 | 5,061 | ||||||||||||||
| Total reportable segments | $ | 25,033 | $ | 8,928 | $ | 3,122 | |||||||||||
| Reconciliation of segment adjusted EBITDA for reportable segments to income (loss) from continuing operations before income taxes | |||||||||||||||||
| Total reportable segments | $ | 25,033 | $ | 8,928 | $ | 3,122 | |||||||||||
| Corporate | (698) | (587) | (635) | ||||||||||||||
| Refining planned turnaround costs | (1,122) | (582) | (832) | ||||||||||||||
| Storm impacts | — | (70) | — | ||||||||||||||
| LIFO inventory (charge) credit | 148 | — | (561) | ||||||||||||||
| Gain on sale of assets(a) | 1,058 | — | 66 | ||||||||||||||
| Renewable volume obligation requirements(b) | 238 | — | — | ||||||||||||||
| Litigation | 27 | — | 84 | ||||||||||||||
| Impairments(c) | — | (13) | (9,741) | ||||||||||||||
| Idling facility expenses | — | (12) | — | ||||||||||||||
| Restructuring expenses(d) | — | — | (367) | ||||||||||||||
| Transaction related costs(e) | — | — | (8) | ||||||||||||||
| Depreciation and amortization | (3,215) | (3,364) | (3,375) | ||||||||||||||
| Net interest and other financial costs | (1,000) | (1,483) | (1,365) | ||||||||||||||
| Income (loss) from continuing operations before income taxes | $ | 20,469 | $ | 2,817 | $ | (13,612) |
(a)2022 includes the non-cash gain related to the contribution of assets by MPC on the formation of the Martinez Renewables joint venture and the non-cash gain on lease reclassification. See Note 16 and 28 for additional information.
(b)Represents retroactive changes in renewable volume obligation requirements published by the EPA in June 2022 for the 2020 and 2021 annual obligations.
(c)2021 reflects impairments of equity method investments. 2020 reflects impairments of goodwill, equity method investments and long lived assets. See Note 7.
(d)See Note 19.
(e)2020 includes costs incurred in connection with the Midstream strategic review and other related efforts. Costs incurred in connection with the Speedway separation are included in discontinued operations. See Note 5.
| (Millions of dollars) | 2022 | 2021 | 2020 | ||||||||||||||
| Sales and other operating revenues | |||||||||||||||||
| Refining & Marketing | |||||||||||||||||
| Revenues from external customers(a) | $ | 172,087 | $ | 115,350 | $ | 66,180 | |||||||||||
| Intersegment revenues | 118 | 144 | 67 | ||||||||||||||
| Refining & Marketing segment revenues | 172,205 | 115,494 | 66,247 | ||||||||||||||
| Midstream | |||||||||||||||||
| Revenues from external customers(a) | 5,366 | 4,633 | 3,599 | ||||||||||||||
| Intersegment revenues | 5,224 | 4,986 | 4,839 | ||||||||||||||
| Midstream segment revenues | 10,590 | 9,619 | 8,438 | ||||||||||||||
| Total segment revenues | 182,795 | 125,113 | 74,685 | ||||||||||||||
| Less: intersegment revenues | 5,342 | 5,130 | 4,906 | ||||||||||||||
| Consolidated sales and other operating revenues | $ | 177,453 | $ | 119,983 | $ | 69,779 |
(a)Includes Refining & Marketing intercompany sales to Speedway prior to May 14, 2021 and related party sales. See Notes 5 and 9 for additional information.
| (Millions of dollars) | 2022 | 2021 | 2020 | ||||||||||||||
| Income (loss) from equity method investments | |||||||||||||||||
| Refining & Marketing | $ | 31 | $ | 59 | $ | 2 | |||||||||||
| Midstream | 624 | 412 | 378 | ||||||||||||||
| Corporate(a) | — | (13) | (1,315) | ||||||||||||||
| Consolidated income (loss) from equity method investments | $ | 655 | $ | 458 | $ | (935) | |||||||||||
| Depreciation and amortization | |||||||||||||||||
| Refining & Marketing | $ | 1,850 | $ | 1,870 | $ | 1,857 | |||||||||||
| Midstream | 1,310 | 1,329 | 1,353 | ||||||||||||||
| Corporate(b) | 55 | 165 | 165 | ||||||||||||||
| Consolidated depreciation and amortization | $ | 3,215 | $ | 3,364 | $ | 3,375 | |||||||||||
| Capital expenditures | |||||||||||||||||
| Refining & Marketing | $ | 1,508 | $ | 911 | $ | 1,170 | |||||||||||
| Midstream | 1,069 | 731 | 1,398 | ||||||||||||||
| Segment capital expenditures and investments | 2,577 | 1,642 | 2,568 | ||||||||||||||
| Less investments in equity method investees | 405 | 210 | 485 | ||||||||||||||
| Plus: | |||||||||||||||||
| Corporate | 108 | 105 | 80 | ||||||||||||||
| Capitalized interest | 103 | 68 | 106 | ||||||||||||||
| Consolidated capital expenditures(c) | $ | 2,383 | $ | 1,605 | $ | 2,269 |
(a) Impairment of equity method investment. See Note 7.
(b) 2021 includes an impairment of $56 million. See Note 7.
(c) Includes changes in capital expenditure accruals. See Note 24 for a reconciliation of total capital expenditures to additions to property, plant and equipment as reported in the consolidated statements of cash flows.
Since we will continue to supply fuel to Speedway subsequent to the sale to 7-Eleven, we have reported intersegment sales to Speedway, that were previously eliminated in consolidation, as third-party sales. All periods presented have been retrospectively adjusted through the sale date of May 14, 2021 to reflect this change. Sales to Speedway/7-Eleven from the Refining & Marketing segment represented 10 percent, 11 percent and 11 percent of our total annual revenues for the years ended December 31, 2022, 2021 and 2020, respectively. See Note 23 for the disaggregation of our revenue by segment and product line.
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.
13**.** Net Interest and Other Financial Costs
Net interest and other financial costs were as follows:
| (Millions of dollars) | 2022 | 2021 | 2020 | ||||||||||||||
| Interest income | $ | (191) | $ | (14) | $ | (9) | |||||||||||
| Interest expense | 1,299 | 1,340 | 1,462 | ||||||||||||||
| Interest capitalized | (104) | (73) | (129) | ||||||||||||||
| Pension and other postretirement non-service costs(a) | 3 | 64 | 11 | ||||||||||||||
| (Gain) loss on extinguishment of debt | 2 | 133 | (9) | ||||||||||||||
| Investments - net premium (discount) amortization | (30) | (1) | — | ||||||||||||||
| Other financial costs | 21 | 34 | 39 | ||||||||||||||
| Net interest and other financial costs | $ | 1,000 | $ | 1,483 | $ | 1,365 |
(a)See Note 26.
14. Income Taxes
The provision (benefit) for income taxes from continuing operations consisted of:
| (Millions of dollars) | 2022 | 2021 | 2020 | ||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 3,565 | $ | 380 | $ | (2,267) | |||||||||||
| State and local | 629 | 48 | 69 | ||||||||||||||
| Foreign | 7 | 5 | 9 | ||||||||||||||
| Total current | 4,201 | 433 | (2,189) | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | 191 | (164) | 90 | ||||||||||||||
| State and local | 98 | (6) | (347) | ||||||||||||||
| Foreign | 1 | 1 | 16 | ||||||||||||||
| Total deferred | 290 | (169) | (241) | ||||||||||||||
| Income tax provision (benefit) | $ | 4,491 | $ | 264 | $ | (2,430) |
Our effective tax rate for the year ended December 31, 2022 was higher than the tax computed at the U.S. statutory rate primarily due to state taxes, partially offset by permanent tax benefits related to net income attributable to noncontrolling interests.
Our effective tax rate for the year ended December 31, 2021 was lower than the tax computed at the U.S. statutory rate primarily due to permanent tax benefits related to net income attributable to noncontrolling interests and an increase in benefit related to the net operating loss (“NOL”) carryback provided under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), partially offset by state taxes and local income taxes.
Our effective income tax benefit rate for the year ended December 31, 2020 was lower than the tax benefit computed at the U.S. statutory rate due to a significant amount of our pre-tax loss consisting of non-deductible goodwill impairment charges, partially offset by the tax rate differential resulting from the NOL carryback provided under the CARES Act. Additionally, our non-controlling interest in MPLX generally provides an effective tax rate benefit since the tax associated with these ownership interests is paid by those interests, but this benefit was lower for the year ended December 31, 2020 due to impairment charges recorded by MPLX.
A reconciliation of the federal statutory income tax rate to the effective tax rate applied to income (loss) from continuing operations before income taxes follows:
| 2022 | 2021 | 2020 | |||||||||||||||
| Federal statutory rate | 21 | % | 21 | % | 21 | % | |||||||||||
| State and local income taxes, net of federal income tax effects | 3 | 2 | 2 | ||||||||||||||
| Goodwill impairment | — | — | (8) | ||||||||||||||
| Noncontrolling interests | (2) | (9) | — | ||||||||||||||
| Legislation | — | (3) | 4 | ||||||||||||||
| Other | — | (2) | (1) | ||||||||||||||
| Effective tax rate applied to income (loss) from continuing operations before income taxes | 22 | % | 9 | % | 18 | % |
On March 27, 2020, the CARES Act was enacted by Congress and signed into law by President Trump in response to the COVID-19 pandemic. The CARES Act contained a NOL carryback provision which allowed MPC to carryback our 2020 taxable loss to 2015 and later years. The five-year NOL carryback is available for all businesses producing taxable losses in 2018 through 2020. Based on the NOL carryback, as provided by the CARES Act, we realized a cumulative income tax benefit of $2.30 billion. We received $1.55 billion of the income tax benefit in cash during the fourth quarter of 2021, an additional $690 million was realized as an offset to 2021 income tax liability payment obligations and we expect to receive the remaining $59 million refund during 2023.
Deferred tax assets and liabilities resulted from the following:
| December 31, | |||||||||||
| (Millions of dollars) | 2022 | 2021 | |||||||||
| Deferred tax assets: | |||||||||||
| Employee benefits | $ | 481 | $ | 495 | |||||||
| Environmental remediation | 84 | 91 | |||||||||
| Finance lease obligations | 371 | 339 | |||||||||
| Operating lease liabilities | 224 | 263 | |||||||||
| Net operating loss carryforwards | 44 | 122 | |||||||||
| Tax credit carryforwards | 20 | 19 | |||||||||
| Goodwill and other intangibles | 56 | 35 | |||||||||
| Other | 44 | 58 | |||||||||
| Total deferred tax assets | 1,324 | 1,422 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Property, plant and equipment | 2,656 | 2,716 | |||||||||
| Inventories | 686 | 717 | |||||||||
| Investments in subsidiaries and affiliates | 3,660 | 3,350 | |||||||||
| Right of use assets | 223 | 257 | |||||||||
| Other | 2 | 18 | |||||||||
| Total deferred tax liabilities | 7,227 | 7,058 | |||||||||
| Net deferred tax liabilities | $ | 5,903 | $ | 5,636 |
Net deferred tax liabilities were classified in the consolidated balance sheets as follows:
| December 31, | |||||||||||
| (Millions of dollars) | 2022 | 2021 | |||||||||
| Assets: | |||||||||||
| Other noncurrent assets | $ | 1 | $ | 2 | |||||||
| Liabilities: | |||||||||||
| Deferred income taxes | 5,904 | 5,638 | |||||||||
| Net deferred tax liabilities | $ | 5,903 | $ | 5,636 |
At both December 31, 2022 and 2021, federal operating loss carryforwards were $4 million, which includes a mix of indefinite carryforward ability and expiration periods ranging from 2032 through 2037. As of December 31, 2022 and 2021, state and local operating loss and tax credit carryforwards were $40 million and $128 million, respectively, which includes a mix of indefinite carryforward ability and expiration periods ranging from 2023 through 2040. As of December 31, 2022 and 2021, foreign operating loss carryforwards were $20 million and $9 million, respectively, which includes expiration periods ranging from 2029 through 2043.
As of December 31, 2022 and 2021, $49 million and $38 million of valuation allowances have been recorded related to income taxes, primarily related to realizability foreign tax operating losses and related deferred tax assets.
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. During the fourth quarter of 2021, an IRS audit was initiated for MPLX and its subsidiaries for the tax year 2019 and continued during 2022. We do not believe the eventual outcome of such audit will have a material impact on our financial statements as of December 31, 2022.
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, 2022, we have various state and local income tax returns subject to examination for years 2006 through 2021, depending on jurisdiction.
The following table summarizes the activity in unrecognized tax benefits:
| (Millions of dollars) | 2022 | 2021 | 2020 | ||||||||||||||
| January 1 balance | $ | 37 | $ | 23 | $ | 32 | |||||||||||
| Additions for tax positions of current year | — | 6 | — | ||||||||||||||
| Additions for tax positions of prior years | 38 | 19 | 12 | ||||||||||||||
| Reductions for tax positions of prior years | (2) | (4) | (18) | ||||||||||||||
| Settlements | (15) | (6) | (3) | ||||||||||||||
| Statute of limitations | (1) | (1) | — | ||||||||||||||
| December 31 balance | $ | 57 | $ | 37 | $ | 23 |
If the unrecognized tax benefits as of December 31, 2022 were recognized, $49 million would affect our effective income tax rate. There were $29 million of uncertain tax positions as of December 31, 2022 for which it is reasonably possible that the amount of unrecognized tax benefits would significantly decrease during the next twelve months.
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, $(2) million and $(19) million in 2022, 2021 and 2020, respectively. As of December 31, 2022 and 2021, $4 million and $6 million of interest and penalties receivables (payables) were accrued related to income taxes, respectively.
15**.** Inventories
| December 31, | |||||||||||
| (Millions of dollars) | 2022 | 2021 | |||||||||
| Crude oil | $ | 3,047 | $ | 2,639 | |||||||
| Refined products | 4,748 | 4,460 | |||||||||
| Materials and supplies | 1,032 | 956 | |||||||||
| Total | $ | 8,827 | $ | 8,055 |
The LIFO method accounted for 88 percent of total inventory value at both December 31, 2022 and 2021. Current acquisition costs were estimated to exceed the LIFO inventory value by $3.72 billion as of December 31, 2022. There was $2.84 billion excess of replacement or current cost over our stated LIFO cost at December 31, 2021.
The cost of inventories of crude oil and refined products is determined primarily under the LIFO method.
16**.** Equity Method Investments
Crowley Ocean Partners
Crowley Coastal Partners was formed in May 2016 to own both Crowley Ocean Partners LLC (“Crowley Ocean Partners”) and Crowley Blue Waters Partners. MPC accounts for our 50 percent ownership in Crowley Coastal Partners as an equity method investment.
On December 1, 2022, MPC purchased all of Crowley Coastal Partner’s interest in Crowley Ocean Partners and its four subsidiaries for approximately $485 million, which included $196 million to pay off the debt associated with the four tankers. As a result of the transaction, Crowley Ocean Partners is now included in our consolidated results. MPC will continue to account for its 50 percent interest in Crowley Coastal Partners as an equity method investment.
The excess of the $144 million fair value over the $125 million book value of our 50 percent indirect interest in Crowley Ocean Partners resulted in a $19 million gain, which is included in the income (loss) from equity method investments line of the accompanying consolidated statements of income.
Martinez Renewables LLC
On September 21, 2022, MPC closed on the formation of the Martinez Renewable joint venture. MPC contributed property, plant and equipment, inventory, and working capital with an estimated fair value of $1.47 billion and Neste contributed $728 million in cash. MPC recorded a non-cash gain of $549 million resulting from the difference between the carrying value and fair value of the contributed property, plant and equipment and inventory. Subsequent to the closing, the joint venture paid a special distribution to MPC of $500 million, which is reflected as a return of capital in MPC’s consolidated statements of cash flows. After the special distribution, MPC’s investment value in the entity was approximately $971 million. We apply the equity method of accounting with respect to our investment in the entity.
Watson Cogeneration Company
On June 1, 2022, MPC purchased the remaining 49 percent interest in Watson Cogeneration Company from NRG Energy, Inc. for approximately $59 million. This entity is now consolidated and included in our consolidated results. It was previously accounted for as an equity method investment.
The excess of the $62 million fair value over the $25 million book value of our 51 percent ownership interest in Watson Cogeneration Company resulted in a $37 million non-cash gain, which is included in the net gain on disposal of assets line of the accompanying consolidated statements of income.
| Ownership as of | Carrying value at | ||||||||||||||||||||||
| December 31, | December 31, | ||||||||||||||||||||||
| (In millions of dollars, except ownership percentages) | VIE | 2022 | 2022 | 2021 | |||||||||||||||||||
| Refining & Marketing | |||||||||||||||||||||||
| The Andersons Marathon Holdings LLC | 50% | $ | 204 | $ | 194 | ||||||||||||||||||
| Martinez Renewables LLC | X | 50% | 1,070 | — | |||||||||||||||||||
| Watson Cogeneration Company | —% | — | 28 | ||||||||||||||||||||
| Other(a) | X | 54 | 19 | ||||||||||||||||||||
| Refining & Marketing Total | $ | 1,328 | $ | 241 | |||||||||||||||||||
| Midstream | |||||||||||||||||||||||
| MPLX | |||||||||||||||||||||||
| Andeavor Logistics Rio Pipeline LLC | X | 67% | $ | 177 | $ | 183 | |||||||||||||||||
| Centrahoma Processing LLC | 40% | 131 | 133 | ||||||||||||||||||||
| Illinois Extension Pipeline Company, L.L.C | 35% | 236 | 243 | ||||||||||||||||||||
| LOOP LLC | 41% | 287 | 265 | ||||||||||||||||||||
| MarEn Bakken Company LLC | 25% | 475 | 449 | ||||||||||||||||||||
| MarkWest EMG Jefferson Dry Gas Gathering Company, L.L.C. | X | 67% | 335 | 332 | |||||||||||||||||||
| MarkWest Torñado GP, L.L.C. | X | 60% | 306 | 246 | |||||||||||||||||||
| MarkWest Utica EMG, L.L.C. | X | 57% | 669 | 680 | |||||||||||||||||||
| Minnesota Pipe Line Company, LLC | 17% | 178 | 183 | ||||||||||||||||||||
| Rendezvous Gas Services, L.L.C. | X | 78% | 137 | 147 | |||||||||||||||||||
| Sherwood Midstream Holdings LLC | X | 51% | 125 | 136 | |||||||||||||||||||
| Sherwood Midstream LLC | X | 50% | 512 | 544 | |||||||||||||||||||
| Whistler Pipeline LLC | X | 38% | 211 | 155 | |||||||||||||||||||
| Other(a) | X | 316 | 285 | ||||||||||||||||||||
| MPLX Total | $ | 4,095 | $ | 3,981 | |||||||||||||||||||
| MPC-Retained | |||||||||||||||||||||||
| Capline Pipeline Company LLC | X | 33% | $ | 404 | $ | 399 | |||||||||||||||||
| Crowley Coastal Partners, LLC | X | 50% | 55 | 185 | |||||||||||||||||||
| Gray Oak Pipeline, LLC | 25% | 302 | 318 | ||||||||||||||||||||
| LOOP LLC | 10% | 71 | 66 | ||||||||||||||||||||
| South Texas Gateway Terminal LLC | 25% | 170 | 173 | ||||||||||||||||||||
| Other(a) | X | 41 | 46 | ||||||||||||||||||||
| MPC-Retained Total | $ | 1,043 | $ | 1,187 | |||||||||||||||||||
| Midstream Total | $ | 5,138 | $ | 5,168 | |||||||||||||||||||
| Total | $ | 6,466 | $ | 5,409 |
(a)Some investments included within “Other” have been deemed to be VIEs.
Summarized financial information for all equity method investments in affiliated companies, combined, was as follows:
| (Millions of dollars) | 2022 | 2021 | 2020 | ||||||||||||||
| Income statement data: | |||||||||||||||||
| Revenues and other income | $ | 5,069 | $ | 4,343 | $ | 3,013 | |||||||||||
| Income from operations | 1,907 | 1,389 | 599 | ||||||||||||||
| Net income | 1,740 | 1,230 | 454 | ||||||||||||||
| Balance sheet data – December 31: | |||||||||||||||||
| Current assets | $ | 1,811 | $ | 1,233 | |||||||||||||
| Noncurrent assets | 20,324 | 18,071 | |||||||||||||||
| Current liabilities | 1,478 | 801 | |||||||||||||||
| Noncurrent liabilities | 4,750 | 5,141 |
As of December 31, 2022, the carrying value of our equity method investments was $304 million higher than the underlying net assets of investees. This basis difference is being amortized into net income over the remaining estimated useful lives of the underlying net assets, except for $208 million of excess related to goodwill and other non-depreciable assets.
Dividends and partnership distributions received from equity method investees (excluding distributions that represented a return of capital previously contributed) were $772 million, $652 million and $577 million in 2022, 2021 and 2020, respectively.
See Note 7 for information regarding impairments of equity method investments.
17**.** Property, Plant and Equipment
| December 31, 2022 | December 31, 2021 | |||||||||||||||||||||||||||||||||||||
| (Millions of dollars) | Gross PP&E | Accumulated Depreciation | Net PP&E | Gross PP&E | Accumulated Depreciation | Net PP&E | ||||||||||||||||||||||||||||||||
| Refining & Marketing | $ | 32,292 | $ | 16,745 | $ | 15,547 | $ | 31,089 | $ | 14,876 | $ | 16,213 | ||||||||||||||||||||||||||
| Midstream | 27,659 | 8,118 | 19,541 | 28,098 | 7,384 | 20,714 | ||||||||||||||||||||||||||||||||
| Corporate | 1,550 | 981 | 569 | 1,446 | 933 | 513 | ||||||||||||||||||||||||||||||||
| Total(a) | $ | 61,501 | $ | 25,844 | $ | 35,657 | $ | 60,633 | $ | 23,193 | $ | 37,440 |
(a)Includes finance leases. See Note 28.
Property, plant and equipment includes construction in progress of $2.29 billion and $2.27 billion at December 31, 2022 and 2021, respectively, which primarily relates to capital projects at our refineries and midstream facilities.
18**.** Goodwill and Intangibles
Goodwill
MPC annually evaluates goodwill for impairment as of November 30, as well as whenever events or changes in circumstances indicate it is more likely than not that the fair value of a reporting unit with goodwill is less than its carrying amount. There were no impairments of goodwill required based on our annual test of goodwill in 2022 and 2021.
At December 31, 2022, MPC had four reporting units with goodwill totaling approximately $8.24 billion. For the annual impairment assessment as of November 30, 2022, management performed only a qualitative assessment for three reporting units as we determined it was more likely than not that the fair value of the reporting units exceeded the carrying value. A quantitative assessment was performed for the remaining reporting unit, which resulted in the fair value of the reporting unit exceeding its carrying value by greater than 10 percent.
The changes in the carrying amount of goodwill for 2022 were as follows:
| (Millions of dollars) | Refining & Marketing | Midstream | Total | ||||||||||||||
| Balance as of December 31, 2020 | $ | 561 | $ | 7,695 | $ | 8,256 | |||||||||||
| Impairment losses | — | — | — | ||||||||||||||
| Balance as of December 31, 2021 | 561 | 7,695 | 8,256 | ||||||||||||||
| Impairment losses | — | — | — | ||||||||||||||
| Disposal of assets | — | (12) | (12) | ||||||||||||||
| Balance as of December 31, 2022 | $ | 561 | $ | 7,683 | $ | 8,244 | |||||||||||
| Gross goodwill as of December 31, 2022 | $ | 6,141 | $ | 10,824 | $ | 16,965 | |||||||||||
| Accumulated impairment losses | (5,580) | (3,141) | (8,721) | ||||||||||||||
| Balance as of December 31, 2022 | $ | 561 | $ | 7,683 | $ | 8,244 |
Intangible Assets
Our definite lived intangible assets as of December 31, 2022 and 2021 are as shown below.
| December 31, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||
| (Millions of dollars) | Gross | Accumulated Amortization | Net | Gross | Accumulated Amortization | Net | |||||||||||||||||||||||||||||
| Customer contracts and relationships | $ | 3,624 | $ | 1,825 | $ | 1,799 | $ | 3,495 | $ | 1,457 | $ | 2,038 | |||||||||||||||||||||||
| Brand rights and tradenames | 100 | 64 | 36 | 100 | 50 | 50 | |||||||||||||||||||||||||||||
| Royalty agreements | 138 | 103 | 35 | 135 | 96 | 39 | |||||||||||||||||||||||||||||
| Other | 36 | 30 | 6 | 36 | 28 | 8 | |||||||||||||||||||||||||||||
| Total | $ | 3,898 | $ | 2,022 | $ | 1,876 | $ | 3,766 | $ | 1,631 | $ | 2,135 |
At both December 31, 2022 and 2021, we had indefinite lived intangible assets of $71 million, which are emission allowance credits.
Amortization expense for 2022 and 2021 was $316 million and $330 million, respectively. Estimated future amortization expense for the next five years related to the intangible assets at December 31, 2022 is as follows:
| (Millions of dollars) | |||||
| 2023 | $ | 315 | |||
| 2024 | 257 | ||||
| 2025 | 241 | ||||
| 2026 | 221 | ||||
| 2027 | 193 |
19. Restructuring
During the third quarter of 2020, we indefinitely idled our refinery located in Gallup, New Mexico and initiated actions to strategically reposition our Martinez, California refinery to a renewable diesel facility. We also approved an involuntary workforce reduction plan. In connection with these strategic actions, we recorded restructuring expenses of $367 million in 2020.
The indefinite idling of the Gallup refinery and actions to strategically reposition the Martinez refinery to a renewable diesel facility resulted in $195 million of restructuring expenses. Of the $195 million of restructuring expenses, we expect $130 million to settle in cash for costs related to decommissioning refinery processing units and storage tanks and fulfilling environmental remediation obligations. Additionally, we recorded a non-cash reserve against our materials and supplies inventory at these facilities of $51 million.
The involuntary workforce reduction plan, together with employee reductions resulting from our actions affecting the Gallup and Martinez refineries, affected approximately 2,050 employees. We recorded $172 million of restructuring expenses for separation benefits payable under our employee separation plan and certain collective bargaining agreements that we expect to settle in
cash. Certain of the affected MPC employees provided services to MPLX. MPLX has various employee services agreements and secondment agreements with MPC pursuant to which MPLX reimburses MPC for employee costs, along with the provision of operational and management services in support of MPLX’s operations. Pursuant to such agreements, MPC was reimbursed by MPLX for $37 million of the $172 million of restructuring expenses recorded for these actions.
Restructuring expenses were accrued as restructuring reserves within accounts payable, payroll and benefits payable, other current liabilities and deferred credits and other liabilities within our consolidated balance sheets. We expect cash payments for the remaining exit and disposal costs reserve to occur through 2024.
| (Millions of dollars) | Employee separation costs | Exit and disposal costs | Total | ||||||||||||||
| Restructuring reserve balance at September 30, 2020(a) | $ | 158 | $ | 133 | $ | 291 | |||||||||||
| Adjustments | 14 | 5 | 19 | ||||||||||||||
| Cash payments | (134) | (35) | (169) | ||||||||||||||
| Restructuring reserve balance at December 31, 2020 | 38 | 103 | 141 | ||||||||||||||
| Cash payments | (38) | (44) | (82) | ||||||||||||||
| Restructuring reserve balance at December 31, 2021 | — | 59 | 59 | ||||||||||||||
| Cash payments | — | (13) | (13) | ||||||||||||||
| Restructuring reserve balance at December 31, 2022 | $ | — | $ | 46 | $ | 46 |
(a)The restructuring reserve was zero until the third quarter of 2020.
20**.** 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, 2022 and 2021 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, 2022 | |||||||||||||||||||||||||||||||||||
| Fair Value Hierarchy | |||||||||||||||||||||||||||||||||||
| (Millions of dollars) | Level 1 | Level 2 | Level 3 | Netting and Collateral(a) | Net Carrying Value on Balance Sheet(b) | Collateral Pledged Not Offset | |||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||
| Commodity contracts | $ | 310 | $ | — | $ | — | $ | (243) | $ | 67 | $ | 100 | |||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||||||||
| Commodity contracts | $ | 301 | $ | — | $ | — | $ | (301) | $ | — | $ | — | |||||||||||||||||||||||
| Embedded derivatives in commodity contracts | — | — | 61 | — | 61 | — |
| December 31, 2021 | |||||||||||||||||||||||||||||||||||
| Fair Value Hierarchy | |||||||||||||||||||||||||||||||||||
| (Millions of dollars) | Level 1 | Level 2 | Level 3 | Netting and Collateral(a) | Net Carrying Value on Balance Sheet(b) | Collateral Pledged Not Offset | |||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||
| Commodity contracts | $ | 270 | $ | 1 | $ | — | $ | (235) | $ | 36 | $ | 34 | |||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||||||||
| Commodity contracts | $ | 248 | $ | 1 | $ | — | $ | (249) | $ | — | $ | — | |||||||||||||||||||||||
| Embedded derivatives in commodity contracts | — | — | 108 | — | 108 | — |
(a)Represents the impact of netting assets, liabilities and cash collateral when a legal right of offset exists. As of December 31, 2022, cash collateral of $58 million was netted with mark-to-market liabilities. As of December 31, 2021, cash collateral of $14 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.
Level 3 instruments relate to an embedded derivative liability for a natural gas purchase commitment embedded in a keep‑whole processing agreement. The fair value calculation for these Level 3 instruments at December 31, 2022 used significant unobservable inputs including: (1) NGL prices interpolated and extrapolated due to inactive markets ranging from $0.68 to $1.62 per gallon with a weighted average of $0.84 per gallon and (2) the probability of renewal of 100 percent for the five-year term of the natural gas purchase agreement and the related keep-whole processing agreement. Increases or decreases in the fractionation spread result in an increase or decrease in the fair value of the embedded derivative liability.
The following is a reconciliation of the beginning and ending balances recorded for net liabilities classified as Level 3 in the fair value hierarchy.
| (Millions of dollars) | 2022 | 2021 | |||||||||
| Beginning balance | $ | 108 | $ | 63 | |||||||
| Unrealized and realized (gain)/loss included in net income | (35) | 59 | |||||||||
| Settlements of derivative instruments | (12) | (14) | |||||||||
| Ending balance | $ | 61 | $ | 108 | |||||||
| The amount of total (gain)/ loss for the period included in earnings attributable to the change in unrealized (gain)/loss relating to liabilities still held at the end of period: | $ | (33) | $ | 47 |
See Note 21 for the income statement impacts of our derivative instruments.
Fair Values – Non-recurring
Non-recurring fair value measurements and disclosures relate primarily to sales-type leases discussed in Note 28 and the Martinez Renewables LLC equity method investment discussed in Note 16. The net investment in sales-type leases was recorded at the estimated fair value of the underlying leased assets at contract modification date. The leased assets were valued using a cost method valuation approach which utilizes Level 3 inputs. The fair value of the Martinez Renewables LLC equity method investment was primarily based on the cash consideration received from Neste for their 50 percent ownership.
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 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 $26.3 billion and $24.0 billion at December 31, 2022, respectively, and approximately $25.1 billion and $28.1 billion at December 31, 2021, respectively. These carrying and fair values of our debt exclude the unamortized issuance costs which are netted against our total debt.
21. Derivatives
For further information regarding the fair value measurement of derivative instruments, including any effect of master netting agreements or collateral, see Note 20. 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, 2022 and 2021 and the line items in the consolidated 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.
| (Millions of dollars) | December 31, 2022 | December 31, 2021 | |||||||||||||||||||||
| Balance Sheet Location | Asset | Liability | Asset | Liability | |||||||||||||||||||
| Commodity derivatives | |||||||||||||||||||||||
| Other current assets | $ | 310 | $ | 301 | $ | 271 | $ | 249 | |||||||||||||||
| Other current liabilities(a) | — | 10 | — | 15 | |||||||||||||||||||
| Deferred credits and other liabilities(a) | — | 51 | — | 93 |
(a)Includes embedded derivatives.
The table below summarizes open commodity derivative contracts for crude oil, refined products and blending products as of December 31, 2022.
| Percentage of contracts that expire next quarter | Position | ||||||||||||||||
| (Units in thousands of barrels) | Long | Short | |||||||||||||||
| Exchange-traded(a) | |||||||||||||||||
| Crude oil | 65.1% | 69,275 | 82,639 | ||||||||||||||
| Refined products | 76.6% | 16,669 | 9,226 | ||||||||||||||
| Blending products | 98.8% | 1,443 | 4,885 | ||||||||||||||
| Soybean oil | 53.5% | 2,103 | 2,623 |
(a)Included in exchange-traded are spread contracts in thousands of barrels: Crude oil - 29,651 long and 29,876 short; Refined products - 1,390 long and 25 short. There are no spread contracts for blending products or soybean oil.
The following table summarizes the effect of all commodity derivative instruments in our consolidated statements of income:
| (Millions of dollars) | Gain (Loss) | ||||||||||||||||
| Income Statement Location | 2022 | 2021 | 2020 | ||||||||||||||
| Sales and other operating revenues | $ | — | $ | (47) | $ | 72 | |||||||||||
| Cost of revenues | (58) | (333) | 34 | ||||||||||||||
| Other income | — | — | 1 | ||||||||||||||
| Total | $ | (58) | $ | (380) | $ | 107 |
22. Debt
Our outstanding borrowings at December 31, 2022 and 2021 consisted of the following:
| (Millions of dollars) | December 31, 2022 | December 31, 2021 | |||||||||
| Marathon Petroleum Corporation: | |||||||||||
| Senior notes | $ | 6,449 | $ | 6,449 | |||||||
| Notes payable | 1 | 1 | |||||||||
| Finance lease obligations | 522 | 589 | |||||||||
| Total | 6,972 | 7,039 | |||||||||
| MPLX LP: | |||||||||||
| Bank revolving credit facility | — | 300 | |||||||||
| Senior notes | 20,100 | 18,600 | |||||||||
| Finance lease obligations | 8 | 9 | |||||||||
| Total | 20,108 | 18,909 | |||||||||
| Total debt | 27,080 | 25,948 | |||||||||
| Unamortized debt issuance costs | (142) | (129) | |||||||||
| Unamortized discount, net of unamortized premium | (238) | (280) | |||||||||
| Amounts due within one year | (1,066) | (571) | |||||||||
| Total long-term debt due after one year | $ | 25,634 | $ | 24,968 |
Commercial Paper
On February 26, 2016, we established a commercial paper program that allows us to have a maximum of $2.0 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 the MPC Credit Agreement.
MPC Senior Notes
| December 31, | |||||||||||
| (Millions of dollars) | 2022 | 2021 | |||||||||
| Senior notes, 3.625% due September 2024 | 750 | 750 | |||||||||
| Senior notes, 4.700% due May 2025 | 1,250 | 1,250 | |||||||||
| Senior notes, 5.125% due December 2026 | 719 | 719 | |||||||||
| Senior notes, 3.800% due April 2028 | 496 | 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 | 498 | |||||||||
| Andeavor senior notes, 3.800% - 5.125% due 2026 – 2048 | 36 | 36 | |||||||||
| Senior notes, 5.000%, due September 2054 | 400 | 400 | |||||||||
| Total | $ | 6,449 | $ | 6,449 |
2021 Activity
On March 1, 2021, we repaid the $1.0 billion outstanding aggregate principal amount of 5.125% senior notes due March 2021.
In June 2021, all of the $300 million outstanding aggregate principal amount of 5.125% senior notes due April 2024, including the portion of such notes for which Andeavor was the obligor, were redeemed at a price equal to 100.854% of the principal amount, plus accrued and unpaid interest to, but not including, the redemption date.
On December 2, 2021, all of the $1.25 billion outstanding aggregate principal amount 4.5% senior notes due May 2023 and the $850 million outstanding aggregate principal amount of 4.75% senior notes due December 2023, including the portion of such notes for which Andeavor was the obligor, were redeemed at a price equal to par, plus a make-whole premium and accrued and unpaid interest to, but not including, the redemption date. The payment of $132 million related to the note premium, offset by the immediate expense recognition of $6 million of unamortized debt premium and issuance costs, resulted in a loss on extinguishment of debt of $126 million.
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 and MPLX. 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.
MPLX Senior Notes
| December 31, | |||||||||||
| (Millions of dollars) | 2022 | 2021 | |||||||||
| Senior notes, 3.500% due December 2022 | $ | — | $ | 486 | |||||||
| Senior notes, 3.375% due March 2023 | — | 500 | |||||||||
| Senior notes, 4.500% due July 2023 | 989 | 989 | |||||||||
| Senior notes, 4.875% due December 2024 | 1,149 | 1,149 | |||||||||
| Senior notes, 4.000% due February 2025 | 500 | 500 | |||||||||
| Senior notes, 4.875% due June 2025 | 1,189 | 1,189 | |||||||||
| MarkWest senior notes, 4.500% - 4.875% due 2023 – 2025 | 23 | 23 | |||||||||
| Senior notes, 1.750% due March 2026 | 1,500 | 1,500 | |||||||||
| Senior notes, 4.125% due March 2027 | 1,250 | 1,250 | |||||||||
| Senior notes, 4.250% due December 2027 | 732 | 732 | |||||||||
| Senior notes, 4.000% due March 2028 | 1,250 | 1,250 | |||||||||
| Senior notes, 4.800% due February 2029 | 750 | 750 | |||||||||
| Senior notes, 2.650% due August 2030 | 1,500 | 1,500 |
| December 31, | |||||||||||
| (Millions of dollars) | 2022 | 2021 | |||||||||
| Senior notes, 4.950% due September 2032 | 1,000 | — | |||||||||
| Senior notes, 4.500% due April 2038 | 1,750 | 1,750 | |||||||||
| Senior notes, 5.200% due March 2047 | 1,000 | 1,000 | |||||||||
| Senior notes, 5.200% due December 2047 | 487 | 487 | |||||||||
| ANDX senior notes, 3.500% - 5.250% due 2022 – 2047 | 31 | 45 | |||||||||
| Senior notes, 4.700% due April 2048 | 1,500 | 1,500 | |||||||||
| Senior notes, 5.500% due February 2049 | 1,500 | 1,500 | |||||||||
| Senior notes, 4.950% due March 2052 | 1,500 | — | |||||||||
| Senior notes, 4.900% due April 2058 | 500 | 500 | |||||||||
| Total | $ | 20,100 | $ | 18,600 |
2022 Activity
On March 14, 2022, MPLX issued $1.5 billion aggregate principal amount of 4.950% senior notes due March 2052 in an underwritten public offering. The net proceeds were used to repay amounts outstanding under the MPC intercompany loan agreement and under the previous MPLX credit agreement.
On August 11, 2022, MPLX issued $1.0 billion aggregate principal amount of 4.950% senior notes due September 2032 in an underwritten public offering. The net proceeds were used to redeem all of the $500 million aggregate principal amount of 3.500% senior notes due December 2022, $14 million of which was issued by Andeavor Logistics LP, and to redeem all of the $500 million aggregate principal amount of 3.375% senior notes due March 2023.
2021 Activity
On January 15, 2021, MPLX redeemed all the $750 million outstanding aggregate principal amount of 5.250% senior notes due January 2025, including the portion of such notes issued by ANDX, at a price equal to 102.625% of the principal amount, plus accrued and unpaid interest to, but not including, the redemption date.
On September 3, 2021, MPLX redeemed, at par value, all of the $1.0 billion aggregate principal amount of floating rate senior notes due September 2022, plus accrued and unpaid interest to, but not including, the redemption date. MPLX primarily funded the redemption with borrowings under the MPC intercompany loan agreement.
Interest on each series of MPLX fixed rate 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.
Schedule of Maturities
Principal maturities of long-term debt, excluding finance lease obligations, as of December 31, 2022 for the next five years are as follows:
| (Millions of dollars) | |||||
| 2023 | $ | 1,000 | |||
| 2024 | 1,901 | ||||
| 2025 | 2,950 | ||||
| 2026 | 2,249 | ||||
| 2027 | 2,000 |
Available Capacity under our Facilities as of December 31, 2022
| (Millions of dollars) | Total Capacity | Outstanding Borrowings | Outstanding Letters of Credit | Available Capacity | Weighted Average Interest Rate | Expiration | |||||||||||||||||||||||||||||
| MPC, excluding MPLX | |||||||||||||||||||||||||||||||||||
| MPC bank revolving credit facility | $ | 5,000 | $ | — | $ | 1 | $ | 4,999 | — | July 2027 | |||||||||||||||||||||||||
| MPC trade receivables securitization facility(a) | 100 | — | 100 | — | — | September 2023 | |||||||||||||||||||||||||||||
| MPLX | |||||||||||||||||||||||||||||||||||
| MPLX bank revolving credit facility | 2,000 | — | — | 2,000 | — | July 2027 |
(a) The committed borrowing and letter of credit issuance capacity of the trade receivables securitization facility is $100 million. In addition, the facility allows for the issuance of letters of credit in excess of the committed capacity at the discretion of the issuing banks. As of December 31, 2022, letters of credit in the total amount of $1.05 billion were issued and outstanding under the facility to secure contracts awarded by the Department of Energy to purchase crude oil from the Strategic Petroleum Reserve.
MPC Bank Revolving Credit Facility
On July 7, 2022, MPC entered into a new five-year revolving credit agreement (the “MPC Credit Agreement”) to replace its previous $5.0 billion credit facility that was scheduled to expire in October 2023. The MPC Credit Agreement, among other things, provides for a $5.0 billion unsecured revolving credit facility that matures in July 2027 and letter of credit issuing capacity under the facility of up to $2.2 billion. Letters of credit issuing capacity is included in, not in addition to, the $5.0 billion borrowing capacity. The financial covenants of the MPC Credit Agreement are substantially the same as those contained in the previous credit agreement.
MPC has an option under the MPC Credit Agreement to increase the aggregate commitments by up to an additional $1.0 billion, subject to, among other conditions, the consent of the lenders whose commitments would be increased. In addition, the maturity date may be extended, for up to two additional one year periods, subject to, among other conditions, the approval of lenders holding the majority of the commitments then outstanding, provided that the commitments of any non-consenting lenders will terminate on the then-effective maturity date. The MPC 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 $3.0 billion upon receipt of additional letter of credit issuing commitments).
Borrowings under the MPC Credit Agreement bear interest, at our election, at either the Adjusted Term SOFR or the Alternate Base Rate, both as defined in the MPC Credit Agreement, plus an applicable margin. We are 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 MPC Credit Agreement fluctuate based on changes, if any, to our credit ratings.
The MPC Credit Agreement contains 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 Agreement, 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, 2022, we were in compliance with the covenants contained in the MPC Credit Agreement.
Trade Receivables Securitization Facility
On September 30, 2021, we entered into a Loan and Security Agreement and related documentation with a group of lenders providing for a new trade receivables securitization facility having $100 million of committed borrowing and letter of credit issuance capacity and up to an additional $400 million of uncommitted borrowing and letter of credit issuance capacity that can be extended at the discretion of the lenders, provided that at no time may outstanding borrowings and letters of credit issued under the facility exceed the balance of eligible trade receivables (as calculated in accordance with the Loan and Security Agreement) that are pledged as collateral under the facility. In July 2022, the trade receivables securitization facility was amended to, among other things, extend its term until September 29, 2023.
The trade receivables facility consists of certain of our wholly owned subsidiaries (“Originators”) selling or contributing on an on-going basis all of the trade receivables generated by them (the “Pool Receivables”), 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 I LLC (“TRC”), in exchange for a combination of cash, equity and/or borrowings under a subordinated note issued by TRC. TRC may request borrowings and extensions of credit under the Loan and Security Agreement for up to the lesser of the maximum capacity under the facility or the eligible trade receivables balance of the Pool Receivables. TRC and each of the Originators have granted a security interest in all of their rights, title and interests in and to the
Pool Receivables, together with all related security and interests in the proceeds thereof, to the lenders to secure the performance of TRC’s and the Originators’ payment and other obligations under the facility. In addition, MPC has issued a performance guaranty in favor of the lenders guaranteeing the performance by TRC and the Originators of their obligations under the facility.
To the extent that TRC retains an ownership interest in the Pool Receivables, 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 lenders to secure its obligations under the Loan and Security Agreement.
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 Loan and Security Agreement and other documents comprising the facility 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 be eligible receivables that count towards the borrowing base under the trade receivables facility. In addition, the lender’s commitments to extend loans and credits under the facility are subject to termination, and TRC may be subject to default fees, upon the occurrence of certain events of default that are included in the Loan and Security Agreement and other facility documentation, all of which we consider to be usual and customary for arrangements of this type. As of December 31, 2022, we were in compliance with the covenants contained in the Loan and Security Agreement and other facility documentation.
MPLX Bank Revolving Credit Facility
On July 7, 2022, MPLX entered into a new five-year revolving credit agreement (the “MPLX Credit Agreement”) to replace its previous $3.5 billion credit facility that was scheduled to expire in July 2024. The MPLX Credit Agreement, among other things, provides for a $2.0 billion unsecured revolving credit facility that matures in July 2027 and letter of credit issuing capacity under the facility of up to $150 million. Letters of credit issuing capacity is included in, not in addition to, the $2.0 billion borrowing capacity.
The borrowing capacity under the MPLX Credit Agreement may be increased by up to an additional $1.0 billion, subject to certain conditions, including the consent of the lenders whose commitments would increase. In addition, the maturity date may be extended, for up to two additional one year periods, subject to, among other conditions, the approval of lenders holding the majority of the commitments then outstanding, provided that the commitments of any non-consenting lenders will terminate on the then-effective maturity date.
Borrowings under the MPLX Credit Agreement bear interest, at MPLX’s election, at either the Adjusted Term SOFR 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, 2022, MPLX was in compliance with the covenants contained in the MPLX Credit Agreement.
23. Revenue
The following table presents our revenues from external customers disaggregated by segment and product line:
| (Millions of dollars) | 2022 | 2021 | 2020 | ||||||||||||||
| Refining & Marketing | |||||||||||||||||
| Refined products | $ | 161,362 | $ | 107,345 | $ | 61,648 | |||||||||||
| Crude oil | 8,962 | 7,132 | 4,023 | ||||||||||||||
| Services and other | 1,763 | 873 | 509 | ||||||||||||||
| Total revenues from external customers | 172,087 | 115,350 | 66,180 | ||||||||||||||
| Midstream | |||||||||||||||||
| Refined products | 2,219 | 1,590 | 641 | ||||||||||||||
| Services and other(a) | 3,147 | 3,043 | 2,958 | ||||||||||||||
| Total revenues from external customers | 5,366 | 4,633 | 3,599 | ||||||||||||||
| Sales and other operating revenues | $ | 177,453 | $ | 119,983 | $ | 69,779 |
(a) Includes sales-type lease revenue. See Note 28.
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, 2022, 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, 2022 include matching buy/sell receivables of $6.25 billion.
24. Supplemental Cash Flow Information
| (Millions of dollars) | 2022 | 2021 | 2020 | ||||||||||||||
| Net cash provided by operating activities included: | |||||||||||||||||
| Interest paid (net of amounts capitalized) | $ | 1,060 | $ | 1,231 | $ | 1,235 | |||||||||||
| Net income taxes paid to (received from) taxing authorities | 4,869 | 2,436 | (179) | ||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities | |||||||||||||||||
| Payments on operating leases | 498 | 569 | 651 | ||||||||||||||
| Interest payments under finance lease obligations | 24 | 21 | 25 | ||||||||||||||
| Net cash provided by financing activities included: | |||||||||||||||||
| Principal payments under finance lease obligations | 79 | 71 | 66 | ||||||||||||||
| Non-cash investing and financing activities: | |||||||||||||||||
| Right of use assets obtained in exchange for new operating lease obligations | 367 | 349 | 343 | ||||||||||||||
| Right of use assets obtained in exchange for new finance lease obligations | 60 | 37 | 110 | ||||||||||||||
| Contribution of assets(a) | 818 | — | — | ||||||||||||||
| Book value of equity method investment(b) | 150 | — | — |
(a) Represents the book value of property, plant and equipment, inventory and working capital contributed by MPC to Martinez Renewables LLC. See Note 16 for additional information.
(b) Represents the book value of MPC’s equity method investment in Watson Cogeneration Company and Crowley Ocean Partners prior to MPC buying out the remaining interest in these entities. See Note 16 for additional information.
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:
| (Millions of dollars) | 2022 | 2021 | 2020 | ||||||||||||||
| Additions to property, plant and equipment per the consolidated statements of cash flows | $ | 2,420 | $ | 1,464 | $ | 2,787 | |||||||||||
| Increase (decrease) in capital accruals | (37) | 141 | (518) | ||||||||||||||
| Total capital expenditures | $ | 2,383 | $ | 1,605 | $ | 2,269 |
25. Accumulated Other Comprehensive Income (Loss)
The following table shows the changes in accumulated other comprehensive income (loss) by component. Amounts in parentheses indicate debits.
| (Millions of dollars) | Pension Benefits | Other Benefits | Other | Total | |||||||||||||||||||
| Balance as of December 31, 2020 | $ | (338) | $ | (181) | $ | 7 | $ | (512) | |||||||||||||||
| Other comprehensive income (loss) before reclassifications, net of tax of $127 | 171 | 220 | (5) | 386 | |||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss: | |||||||||||||||||||||||
| Amortization of prior service cost (credit)(a) | (45) | 2 | — | (43) | |||||||||||||||||||
| Amortization of actuarial loss(a) | 37 | 10 | — | 47 | |||||||||||||||||||
| Settlement loss(a) | 75 | 1 | — | 76 | |||||||||||||||||||
| Other | — | — | (1) | (1) | |||||||||||||||||||
| Tax effect | (17) | (3) | — | (20) | |||||||||||||||||||
| Other comprehensive income (loss) | 221 | 230 | (6) | 445 | |||||||||||||||||||
| Balance as of December 31, 2021 | $ | (117) | $ | 49 | $ | 1 | $ | (67) |
| (Millions of dollars) | Pension Benefits | Other Benefits | Other | Total | |||||||||||||||||||
| Balance as of December 31, 2021 | $ | (117) | $ | 49 | $ | 1 | $ | (67) | |||||||||||||||
| Other comprehensive income (loss) before reclassifications, net of tax of $11 | (70) | 129 | (1) | 58 | |||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss: | |||||||||||||||||||||||
| Amortization of prior service credit(a) | (45) | (22) | — | (67) | |||||||||||||||||||
| Amortization of actuarial loss(a) | 4 | 6 | — | 10 | |||||||||||||||||||
| Settlement loss(a) | 79 | — | — | 79 | |||||||||||||||||||
| Tax effect | (14) | 3 | — | (11) | |||||||||||||||||||
| Other comprehensive income (loss) | (46) | 116 | (1) | 69 | |||||||||||||||||||
| Balance as of December 31, 2022 | $ | (163) | $ | 165 | $ | — | $ | 2 |
(a)These accumulated other comprehensive loss components are included in the computation of net periodic benefit cost. See Note 26.
26. Pension and Other Postretirement Benefits
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 these formulae was frozen as of December 31, 2009. Certain of the pensionable earnings components were frozen as of December 31, 2012. Benefits for service beginning January 1, 2010 and beginning on January 1, 2016 are based on a cash balance formula with an annual percentage of eligible pay credited based upon age and years of service or at a flat rate of eligible pay, depending on covered employee group. Substantially all of our employees also accrue benefits under a defined contribution plan.
| (Millions of dollars) | 2022 | 2021 | 2020 | ||||||||||||||
| Cash balance weighted average interest crediting rates | 3.00 | % | 3.00 | % | 3.00 | % |
We also have other postretirement benefits covering most employees. Retiree health care benefits are provided through comprehensive hospital, surgical, major medical benefit, prescription drug and related health 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 qualified and nonqualified 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. Further, as of December 31, 2019, the qualified plans were merged with our existing qualified plans in which the actuarial assumptions were materially the same between the plans. 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 $2,272 million and $2,995 million as of December 31, 2022 and 2021.
The following summarizes the projected benefit obligations and funded status for our defined benefit pension and other postretirement plans:
| Pension Benefits | Other Benefits | ||||||||||||||||||||||
| (Millions of dollars) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Benefit obligations at January 1 | $ | 3,295 | $ | 3,671 | $ | 828 | $ | 1,131 | |||||||||||||||
| Service cost | 228 | 297 | 26 | 34 | |||||||||||||||||||
| Interest cost | 102 | 93 | 21 | 30 | |||||||||||||||||||
| Actuarial gain(a) | (653) | (169) | (168) | (16) | |||||||||||||||||||
| Benefits paid(b) | (613) | (594) | (57) | (75) | |||||||||||||||||||
| Plan amendments | — | — | — | (276) | |||||||||||||||||||
| Other | — | (3) | — | — | |||||||||||||||||||
| Benefit obligations at December 31 | 2,359 | 3,295 | 650 | 828 | |||||||||||||||||||
| Fair value of plan assets at January 1 | 3,043 | 2,621 | — | — | |||||||||||||||||||
| Actual return on plan assets | (622) | 194 | — | — | |||||||||||||||||||
| Employer contributions(c) | 30 | 822 | 57 | 75 | |||||||||||||||||||
| Benefits paid from plan assets | (613) | (594) | (57) | (75) | |||||||||||||||||||
| Fair value of plan assets at December 31 | 1,838 | 3,043 | — | — | |||||||||||||||||||
| Funded status at December 31 | $ | (521) | $ | (252) | $ | (650) | $ | (828) |
(a)The primary driver of the actuarial gain for the pension and other postretirement benefits plans in 2022 was the increase in discount rate compared to 2021.
(b)Of the $613 million in benefits paid in 2022, $285 million is related to the pension annuity lift-out.
(c)Of the $822 million in pension employer contributions in 2021, $763 million was voluntary contributions.
Amounts recognized in the consolidated balance sheet for our pension and other postretirement benefit plans at December 31 include:
| Pension Benefits | Other Benefits | ||||||||||||||||||||||
| (Millions of dollars) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Current liabilities | $ | (7) | $ | (11) | $ | (50) | $ | (54) | |||||||||||||||
| Noncurrent liabilities | (514) | (241) | (600) | (774) | |||||||||||||||||||
| Accrued benefit cost | $ | (521) | $ | (252) | $ | (650) | $ | (828) |
Included in accumulated other comprehensive loss at December 31 were the following before-tax amounts that had not been recognized in net periodic benefit cost:
| Pension Benefits | Other Benefits | ||||||||||||||||||||||
| (Millions of dollars) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Net actuarial loss | $ | 386 | $ | 360 | $ | 19 | $ | 192 | |||||||||||||||
| Prior service credit | (114) | (159) | (224) | (246) |
Amounts exclude those related to LOOP and Explorer, equity method investees with defined benefit pension and postretirement plans for which net losses (gains) of $11 million and $(1) million were recorded in accumulated other comprehensive income (loss) in 2022, reflecting our ownership share.
Components of Net Periodic Benefit Cost and Other Comprehensive (Income) Loss
The following summarizes the net periodic benefit costs and the amounts recognized as other comprehensive loss (pretax) for our defined benefit pension and other postretirement plans.
| Pension Benefits | Other Benefits | ||||||||||||||||||||||||||||||||||
| (Millions of dollars) | 2022 | 2021 | 2020 | 2022 | 2021 | 2020 | |||||||||||||||||||||||||||||
| Service cost | $ | 230 | $ | 287 | $ | 283 | $ | 26 | $ | 34 | $ | 35 | |||||||||||||||||||||||
| Interest cost | 102 | 93 | 98 | 21 | 30 | 32 | |||||||||||||||||||||||||||||
| Expected return on plan assets | (142) | (139) | (133) | — | — | — | |||||||||||||||||||||||||||||
| Amortization of prior service cost (credit) | (45) | (45) | (45) | (22) | 2 | — | |||||||||||||||||||||||||||||
| Amortization of actuarial loss | 4 | 37 | 36 | 6 | 10 | 3 | |||||||||||||||||||||||||||||
| Settlement loss | 79 | 75 | 20 | — | 1 | — | |||||||||||||||||||||||||||||
| Net periodic benefit cost(a) | $ | 228 | $ | 308 | $ | 259 | $ | 31 | $ | 77 | $ | 70 | |||||||||||||||||||||||
| Actuarial (gain) loss | $ | 109 | $ | (227) | $ | 179 | $ | (167) | $ | (16) | $ | 83 | |||||||||||||||||||||||
| Prior service credit | — | — | — | — | (276) | — | |||||||||||||||||||||||||||||
| Amortization of actuarial loss | (83) | (112) | (56) | (6) | (11) | (3) | |||||||||||||||||||||||||||||
| Amortization of prior service (cost) credit | 45 | 45 | 45 | 22 | (2) | — | |||||||||||||||||||||||||||||
| Total recognized in other comprehensive (income) loss | $ | 71 | $ | (294) | $ | 168 | $ | (151) | $ | (305) | $ | 80 | |||||||||||||||||||||||
| Total recognized in net periodic benefit cost and other comprehensive (income) loss | $ | 299 | $ | 14 | $ | 427 | $ | (120) | $ | (228) | $ | 150 |
(a)Net periodic benefit cost reflects a calculated market-related value of plan assets which recognizes changes in fair value over three years.
For certain of our pension plans, lump sum payments to employees retiring in 2022, 2021 and 2020 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 2022, 2021 and 2020.
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 2022, 2021 and 2020.
| Pension Benefits | Other Benefits | ||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | 2022 | 2021 | 2020 | ||||||||||||||||||||||||||||||
| Benefit obligation: | |||||||||||||||||||||||||||||||||||
| Discount rate | 5.04 | % | 2.82 | % | 2.44 | % | 5.08 | % | 2.93 | % | 2.55 | % | |||||||||||||||||||||||
| Rate of compensation increase | 4.18 | % | 5.70 | % | 5.70 | % | 4.18 | % | 5.70 | % | 5.70 | % | |||||||||||||||||||||||
| Net periodic benefit cost: | |||||||||||||||||||||||||||||||||||
| Discount rate | 3.33 | % | 2.70 | % | 3.00 | % | 2.93 | % | 2.55 | % | 3.23 | % | |||||||||||||||||||||||
| Expected long-term return on plan assets | 5.75 | % | 5.75 | % | 5.75 | % | — | % | — | % | — | % | |||||||||||||||||||||||
| Rate of compensation increase | 4.18 | % | 5.70 | % | 5.70 | % | 4.18 | % | 5.70 | % | 5.70 | % |
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, | |||||||||||||||||
| 2022 | 2021 | 2020 | |||||||||||||||
| Health care cost trend rate assumed for the following year: | |||||||||||||||||
| Medical: Pre-65 | 6.60 | % | 5.80 | % | 6.00 | % | |||||||||||
| Prescription drugs | 8.90 | % | 6.40 | % | 7.00 | % | |||||||||||
| 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 | 2031 | 2030 | 2028 | ||||||||||||||
| Prescription drugs | 2031 | 2030 | 2028 |
Increases in the post-65 medical plan premium for the Marathon Petroleum Health Plan and the Marathon Petroleum Retiree Health Plan have been permanently eliminated.
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, 2022, the primary plan’s targeted asset allocation was 50 percent equity, private equity, real estate, and timber securities and 50 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, 2022 and 2021.
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 the 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 the investment manager’s assessment of assets held. These holdings are considered Level 3. Other investments classified as Level 1 include publicly traded depository receipts, while Level 2 include derivative transactions.
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, 2022 and 2021.
| December 31, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
| (Millions of dollars) | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | — | $ | 3 | $ | — | $ | 3 | $ | — | $ | 47 | $ | — | $ | 47 | |||||||||||||||||||||||||||||||
| Equity: | |||||||||||||||||||||||||||||||||||||||||||||||
| Common stocks | 40 | — | — | 40 | 61 | — | — | 61 | |||||||||||||||||||||||||||||||||||||||
| Mutual funds | 104 | — | — | 104 | 170 | — | — | 170 | |||||||||||||||||||||||||||||||||||||||
| Pooled funds | — | 742 | — | 742 | — | 1,192 | — | 1,192 | |||||||||||||||||||||||||||||||||||||||
| Fixed income: | |||||||||||||||||||||||||||||||||||||||||||||||
| Corporate | — | 582 | — | 582 | — | 800 | — | 800 | |||||||||||||||||||||||||||||||||||||||
| Government | 211 | 41 | — | 252 | 415 | 108 | — | 523 | |||||||||||||||||||||||||||||||||||||||
| Pooled funds | — | 79 | — | 79 | — | 192 | — | 192 | |||||||||||||||||||||||||||||||||||||||
| Private equity | — | — | 13 | 13 | — | — | 19 | 19 | |||||||||||||||||||||||||||||||||||||||
| Real estate | — | — | 14 | 14 | — | — | 17 | 17 | |||||||||||||||||||||||||||||||||||||||
| Other | — | 5 | 4 | 9 | 1 | 3 | 18 | 22 | |||||||||||||||||||||||||||||||||||||||
| Total investments, at fair value | $ | 355 | $ | 1,452 | $ | 31 | $ | 1,838 | $ | 647 | $ | 2,342 | $ | 54 | $ | 3,043 |
The following is a reconciliation of the beginning and ending balances recorded for plan assets classified as Level 3 in the fair value hierarchy:
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||
| (Millions of dollars) | Private Equity | Real Estate | Other | Private Equity | Real Estate | Other | |||||||||||||||||||||||||||||
| Beginning balance | $ | 19 | $ | 17 | $ | 18 | $ | 23 | $ | 20 | $ | 19 | |||||||||||||||||||||||
| Actual return on plan assets: | |||||||||||||||||||||||||||||||||||
| Realized | 3 | 2 | — | 2 | 1 | — | |||||||||||||||||||||||||||||
| Unrealized | (4) | (2) | 7 | 8 | 1 | — | |||||||||||||||||||||||||||||
| Purchases | — | 1 | — | — | — | — | |||||||||||||||||||||||||||||
| Sales | (5) | (4) | (21) | (14) | (5) | (1) | |||||||||||||||||||||||||||||
| Ending balance | $ | 13 | $ | 14 | $ | 4 | $ | 19 | $ | 17 | $ | 18 |
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 2022, we made contributions totaling $15 million to our funded pension plans. For 2023, we do not project any required funding, but we may make voluntary contributions to our funded pension plans at our discretion. Cash contributions to be paid from our general assets for the unfunded pension and postretirement plans are estimated to be approximately $7 million and $50 million, respectively, in 2023.
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.
| (Millions of dollars) | Pension Benefits | Other Benefits | |||||||||
| 2023 | $ | 148 | $ | 50 | |||||||
| 2024 | 155 | 50 | |||||||||
| 2025 | 165 | 50 | |||||||||
| 2026 | 173 | 50 | |||||||||
| 2027 | 175 | 50 | |||||||||
| 2028 through 2032 | 1,010 | 258 |
Contributions to defined contribution plan
We also contribute to a defined contribution plan for eligible employees. Contributions to this plan totaled $167 million, $165 million and $180 million in 2022, 2021 and 2020, 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 2022, 2021 and 2020 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 2022 and 2021 is for the plan’s year ended December 31, 2021 and December 31, 2020, 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 2022, 2021 and 2020 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 (Millions of dollars) | Surcharge Imposed | Expiration Date of Collective – Bargaining Agreement | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pension Fund | EIN | 2022 | 2021 | 2022 | 2021 | 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Central States, Southeast and Southwest Areas Pension Plan(a) | 366044243 | Red | Red | Implemented | $ | 5 | $ | 5 | $ | 5 | No | January 31, 2024 |
(a)This agreement has a minimum contribution requirement of $338 per week per employee for 2023. A total of 258 employees participated in the plan as of December 31, 2022.
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 $7 million, $7 million and $7 million for 2022, 2021 and 2020, respectively.
27. Share-Based Compensation
Description of the Incentive Plans
Our employees and non-employee directors are eligible to receive share, share-based and other types of awards under the Marathon Petroleum Corporation 2021 Incentive Compensation Plan (“MPC 2021 Plan”). The MPC 2021 Plan authorizes the Compensation and Organization Development Committee of our board of directors (“Committee”) to grant nonqualified or incentive stock options, stock appreciation rights, share and share-based awards (including restricted stock and restricted stock
unit awards), cash awards and performance awards to our employees and non-employee directors. The maximum number of shares of our common stock available for awards under the MPC 2021 Plan is 20.5 million shares. The MPC 2021 Plan became effective upon shareholder approval on April 28, 2021. Prior to that date, our employees and non-employee directors were eligible to receive share, share-based and other types of awards under the Amended and Restated Marathon Petroleum Corporation 2012 Incentive Compensation Plan (“MPC 2012 Plan”), effective April 26, 2012, and prior to that date, the Marathon Petroleum Corporation 2011 Second Amended and Restated Incentive Compensation Plan (“MPC 2011 Plan”). Shares issued as a result of awards granted under these plans are funded through the issuance of new MPC common shares.
Share-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
Prior to 2021, we granted stock options to certain officer and non-officer employees under the MPC 2011 Plan and the MPC 2012 Plan. Stock options represent the right to purchase shares of our common stock at an exercise price equal to the closing price of our common stock on the date of grant. Stock options generally vest over a service period of three years and expire ten years after the grant date. We used 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 units to certain employees and to our non-employee directors. Prior to 2021, we granted restricted stock to certain employees and to our 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 awards and restricted stock unit awards granted to officers prior to 2022 are subject to an additional one year holding period after the three-year vesting period. Restricted stock recipients have the right to vote such stock; however, dividends are accrued and when vested are payable at the dates specified in the awards. The non-vested shares are not transferable and are held by our transfer agent. 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 any shares of stock and accrue dividend equivalents which when vested are payable at the dates specified in the awards. The fair values of restricted stock and restricted stock units are equal to the market price of our common stock on the grant date.
Performance Units and Performance Share Units
We grant performance share unit awards to certain officer employees. At grant, a performance share unit has a target value equal to the MPC common stock average 30-day closing price prior to the grant date. The actual payout value of a performance share unit is based on company performance (which can range from 0% to 200%) during the three calendar year period beginning in the year of grant, multiplied by MPC’s closing share price on the date the Committee certifies performance. Performance share units have a vesting service period beginning on the grant date and ending on the last day of the three-year performance period. Company performance for purposes of payout will be determined by the relative ranking of the total shareholder return (“TSR”) of MPC common stock over the three-year performance period compared to the TSR of a select group of peer companies and the Standard & Poor’s 500 Index and the Alerian MLP Index over the performance period, as well as the median of MPC’s compensation reference group. These awards settle 100 percent in cash and are accounted for as liability awards and recorded at fair value with a mark-to-market adjustment made each quarter.
We also grant performance share unit awards to certain non-officer employees. These performance share unit awards operate as explained above for awards made to certain officer employees, but the awards vest in one-third increments on December 31 of the first, second and third calendar years of the three calendar year performance period.
No performance share unit awards were granted prior to 2021. Prior to 2021, we granted performance unit awards to certain officer employees under the MPC 2012 Plan. 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 unit awards have a 36-month requisite service period. The payout value of these awards is determined by the relative ranking of the 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 are settled 25 percent in MPC common stock and 75 percent in cash. The number of shares actually distributed is determined as 25 percent of the final payout divided 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 share awards and do not receive dividend equivalents.
Total Share-Based Compensation Expense
The following table reflects activity related to our share-based compensation arrangements, including the converted awards related to the acquisition of Andeavor:
| (Millions of dollars) | 2022 | 2021 | 2020 | ||||||||||||||
| Share-based compensation expense | $ | 153 | $ | 88 | $ | 100 | |||||||||||
| Tax benefit recognized on share-based compensation expense | 37 | 22 | 25 | ||||||||||||||
| Cash received by MPC upon exercise of stock option awards | 243 | 106 | 11 | ||||||||||||||
| Tax benefit received for tax deductions for stock awards exercised | 53 | 13 | 16 |
Stock Option Awards
The following is a summary of our common stock option activity in 2022:
| Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Terms (in years) | Aggregate Intrinsic Value (Millions of dollars) | ||||||||||||||||||||
| Outstanding at December 31, 2021 | 7,795,036 | $ | 46.23 | ||||||||||||||||||||
| Exercised | (5,267,328) | 46.16 | |||||||||||||||||||||
| Forfeited or expired | (38,474) | 20.87 | |||||||||||||||||||||
| Outstanding at December 31, 2022 | 2,489,234 | 46.78 | |||||||||||||||||||||
| Vested and expected to vest at December 31, 2022 | 2,488,962 | 46.78 | 4.1 | $ | 173 | ||||||||||||||||||
| Exercisable at December 31, 2022 | 2,000,853 | 51.77 | 3.3 | 129 |
The intrinsic value of options exercised by MPC employees during 2022, 2021 and 2020 was $247 million, $88 million and $25 million, respectively.
As of December 31, 2022, unrecognized compensation cost related to stock option awards was $1 million, which is expected to be recognized over a weighted average period of 0.2 years.
Restricted Stock and Restricted Stock Unit Awards
The following is a summary of restricted stock and restricted stock unit award activity of our common stock in 2022:
| Restricted Stock | Restricted Stock Units | ||||||||||||||||||||||
| Number of Shares | Weighted Average Grant Date Fair Value | Number of Units | Weighted Average Grant Date Fair Value | ||||||||||||||||||||
| Unvested at December 31, 2021 | 194,629 | $ | 60.95 | 2,313,919 | $ | 35.84 | |||||||||||||||||
| Granted | — | — | 653,378 | 75.81 | |||||||||||||||||||
| Vested | (191,833) | 60.98 | (1,026,720) | 34.24 | |||||||||||||||||||
| Forfeited | (2,105) | 60.92 | (154,427) | 47.64 | |||||||||||||||||||
| Unvested at December 31, 2022 | 691 | 54.60 | 1,786,150 | 50.36 |
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 (Millions of dollars) | Weighted Average Grant Date Fair Value of Awards Granted During the Period | Intrinsic Value of Awards Vested During the Period (Millions of dollars) | Weighted Average Grant Date Fair Value of Awards Granted During the Period | ||||||||||||||||||||
| 2022 | $ | 17 | $ | — | $ | 99 | $ | 75.81 | |||||||||||||||
| 2021 | 20 | — | 90 | 55.27 | |||||||||||||||||||
| 2020 | 18 | 56.49 | 59 | 22.82 |
As of December 31, 2022, unrecognized compensation cost related to restricted stock awards was less than $1 million, which is expected to be recognized over a weighted average period of 0.1 years. Unrecognized compensation cost related to restricted stock unit awards was $54 million, which is expected to be recognized over a weighted average period of 1.18 years.
Performance Unit Awards
The following table presents a summary of the 2022 activity for performance unit awards to be settled in shares:
| Number of Units | Weighted Average Grant Date Fair Value | ||||||||||
| Unvested at December 31, 2021 | 6,255,283 | $ | 0.78 | ||||||||
| Vested | (6,221,223) | 0.77 | |||||||||
| Forfeited | (34,060) | 0.89 | |||||||||
| Unvested at December 31, 2022 | — | — |
The number of shares that would be issued upon target vesting, using the closing price of our common stock on December 31, 2022 would be 26,685 shares.
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:
| 2020 | |||||||||||||||||
| Risk-free interest rate | 0.9 | % | |||||||||||||||
| Look-back period (in years) | 2.8 | ||||||||||||||||
| Expected volatility | 30.4 | % | |||||||||||||||
| Grant date fair value of performance units granted | $ | 0.89 |
The risk-free interest rate for the remaining performance period as of the grant date is based on the U.S. Treasury yield curve in effect at the time of the grant. The look-back period reflects the remaining performance period at the grant date. The assumption for the expected volatility of our stock price reflects the average MPC common stock historical volatility.
MPLX Awards
Compensation expense for awards of MPLX units are not material to our consolidated financial statements for 2022.
28. Leases
Lessee
We lease a wide variety of facilities and equipment including land and building space, office and field equipment, storage facilities and transportation equipment. Our remaining lease terms range from less than one year to 96 years. Most long-term leases include renewal options ranging from less than one year to 49 years and, in certain leases, also include purchase options. The lease term included in the measurement of right of use assets and lease liabilities includes options to extend or terminate our leases that we are reasonably certain to exercise.
Under ASC 842, the components of lease cost are shown below. Lease costs for operating leases are recognized on a straight line basis and are reflected in the income statement based on the leased asset’s use. Lease costs for finance leases are reflected in depreciation and amortization and in net interest and other financial costs.
| (Millions of dollars) | 2022 | 2021 | 2020 | ||||||||||||||
| Finance lease cost: | |||||||||||||||||
| Amortization of right of use assets | $ | 81 | $ | 78 | $ | 72 | |||||||||||
| Interest on lease liabilities | 29 | 31 | 35 | ||||||||||||||
| Operating lease cost | 490 | 565 | 658 | ||||||||||||||
| Variable lease cost | 59 | 62 | 60 | ||||||||||||||
| Short-term lease cost | 772 | 446 | 649 | ||||||||||||||
| Total lease cost | $ | 1,431 | $ | 1,182 | $ | 1,474 |
Supplemental consolidated balance sheet data related to leases were as follows:
| December 31, | |||||||||||
| (Millions of dollars) | 2022 | 2021 | |||||||||
| Operating leases | |||||||||||
| Assets | |||||||||||
| Right of use assets | $ | 1,214 | $ | 1,372 | |||||||
| Liabilities | |||||||||||
| Operating lease liabilities | $ | 368 | $ | 438 | |||||||
| Long-term operating lease liabilities | 841 | 927 | |||||||||
| Total operating lease liabilities | $ | 1,209 | $ | 1,365 | |||||||
| Weighted average remaining lease term (in years) | 5.1 | 5.0 | |||||||||
| Weighted average discount rate | 3.55 | % | 3.11 | % | |||||||
| Finance leases | |||||||||||
| Assets | |||||||||||
| Property, plant and equipment, gross | $ | 818 | $ | 815 | |||||||
| Less accumulated depreciation | 412 | 336 | |||||||||
| Property, plant and equipment, net | $ | 406 | $ | 479 | |||||||
| Liabilities | |||||||||||
| Debt due within one year | $ | 79 | $ | 73 | |||||||
| Long-term debt | 451 | 525 | |||||||||
| Total finance lease liabilities | $ | 530 | $ | 598 | |||||||
| Weighted average remaining lease term (in years) | 9.9 | 10.3 | |||||||||
| Weighted average discount rate | 5.09 | % | 5.04 | % |
As of December 31, 2022, maturities of lease liabilities for operating lease obligations and finance lease obligations having initial or remaining non-cancellable lease terms in excess of one year are as follows:
| (Millions of dollars) | Operating | Finance | |||||||||
| 2023 | $ | 403 | $ | 104 | |||||||
| 2024 | 308 | 87 | |||||||||
| 2025 | 228 | 78 | |||||||||
| 2026 | 140 | 75 | |||||||||
| 2027 | 72 | 59 | |||||||||
| 2028 and thereafter | 172 | 268 | |||||||||
| Gross lease payments | 1,323 | 671 | |||||||||
| Less: imputed interest | 114 | 141 | |||||||||
| Total lease liabilities | $ | 1,209 | $ | 530 |
Lessor
MPLX is considered to be the lessor under several operating lease agreements in accordance with GAAP related to certain fee-based natural gas transportation and processing agreements in the Marcellus and Southern Appalachia region. The primary term of these agreements expire between 2026 and 2036, however, these contracts either have renewal options or will continue thereafter on a year-to-year basis until terminated by either party.
MPLX did not elect to use the practical expedient to combine lease and non-lease components for lessor arrangements. The tables below represent the portion of the contract allocated to the lease component based on relative standalone selling price. MPLX elected the practical expedient to carry forward historical classification conclusions until a modification of an existing agreement occurs. Once a modification occurs, the amended agreement is required to be assessed under ASC 842 to determine whether a reclassification of the lease is required.
During the third quarter of 2022, the approved expansion of a gathering and compression system triggered the first assessment of a third party agreement under ASC 842. As a result of the assessment during the period, the lease was reclassified from an operating lease to a sales-type lease. Accordingly, the underlying property, plant and equipment of $745 million and associated deferred revenue of $277 million were derecognized. The present value of the future lease payments of $914 million and the unguaranteed residual value of $63 million were recorded as the net investment in the lease within receivables and other noncurrent assets. This resulted in a gain of approximately $509 million, which was recorded as a net gain on disposal of assets in the consolidated statements of income. This transaction was a non-cash transaction.
Lease revenues are included in sales and other operating revenues on the consolidated statements of income. Lease revenues were as follows:
| (Millions of dollars) | 2022 | 2021 | 2020 | ||||||||||||||
| Operating leases: | |||||||||||||||||
| Rental income | $ | 327 | $ | 376 | $ | 398 | |||||||||||
| Sales-type leases: | |||||||||||||||||
| Interest income (Sales-type rental revenue-fixed minimum) | 46 | — | — | ||||||||||||||
| Interest income (Revenue from variable lease payments) | 16 | — | — | ||||||||||||||
| Sales-type lease revenue | $ | 62 | $ | — | $ | — |
The following is a schedule of minimum future rentals on the non-cancelable operating leases as of December 31, 2022:
| (Millions of dollars) | |||||
| 2023 | $ | 97 | |||
| 2024 | 95 | ||||
| 2025 | 64 | ||||
| 2026 | 37 | ||||
| 2027 | 16 | ||||
| 2028 and thereafter | 21 | ||||
| Total minimum future rentals | $ | 330 |
Annual minimum undiscounted lease payment receipts under our sales-type leases were as follows as of December 31, 2022:
| (Millions of dollars) | |||||
| 2023 | $ | 169 | |||
| 2024 | 156 | ||||
| 2025 | 146 | ||||
| 2026 | 137 | ||||
| 2027 | 128 | ||||
| 2028 and thereafter | 970 | ||||
| Total minimum future rentals | 1,706 | ||||
| Less: present value discount | 765 | ||||
| Lease receivables(a) | $ | 941 | |||
| Current lease receivables(b) | $ | 98 | |||
| Long-term lease receivables(c) | 843 | ||||
| Unguaranteed residual assets | 66 | ||||
| Total sales-type lease assets | $ | 1,007 |
(a) This amount does not include the unguaranteed residual assets.
(b) Presented in receivables, net on the consolidated balance sheets.
(c) Presented in other noncurrent assets on the consolidated balance sheets.
Capital expenditures related to assets subject to sales-type lease arrangements were $27 million for the year ended December 31, 2022. These amounts are reflected as additions to property, plant and equipment in the consolidated statements of cash flows.
The following schedule summarizes our investment in assets held under operating lease by major classes as of December 31, 2022 and 2021:
| December 31, | |||||||||||
| (Millions of dollars) | 2022 | 2021 | |||||||||
| Gathering and transportation | $ | 94 | $ | 991 | |||||||
| Processing and fractionation | 973 | 867 | |||||||||
| Terminals | 128 | 128 | |||||||||
| Land, building and other | 10 | 15 | |||||||||
| Property, plant and equipment | 1,205 | 2,001 | |||||||||
| Less accumulated depreciation | 330 | 523 | |||||||||
| Total property, plant and equipment, net | $ | 875 | $ | 1,478 |
29**.** 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 a liability, we are unable to estimate a range of possible loss because the issues involved have not been fully developed through pleadings, discovery or court proceedings. 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, 2022 and 2021, accrued liabilities for remediation totaled $387 million and $401 million, respectively. 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 $5 million and $6 million at December 31, 2022 and 2021, respectively.
Governmental and other entities in various states have filed climate-related lawsuits against numerous energy companies, including MPC. The lawsuits allege damages as a result of climate change and the plaintiffs are seeking unspecified damages and abatement under various tort theories. We are currently subject to such proceedings in federal or state courts in California, Delaware, Maryland, Hawaii, Rhode Island and South Carolina. 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.
Asset Retirement Obligations
Our short-term asset retirement obligations were $27 million and $14 million at December 31, 2022 and 2021, respectively, and are included in other current liabilities in our consolidated balance sheets. Our long-term asset retirement obligations were $186 million and $187 million at December 31, 2022 and 2021, respectively, which are included in deferred credits and other liabilities in our consolidated balance sheets.
Other Legal Proceedings
In July 2020, Tesoro High Plains Pipeline Company, LLC (“THPP”), a subsidiary of MPLX, received a Notification of Trespass Determination from the Bureau of Indian Affairs (“BIA”) relating to a portion of the Tesoro High Plains Pipeline that crosses the Fort Berthold Reservation in North Dakota. The notification demanded the immediate cessation of pipeline operations and assessed trespass damages of approximately $187 million. After subsequent appeal proceedings and in compliance with a new order issued by the BIA, in December 2020, THPP paid approximately $4 million in assessed trespass damages and ceased use of the portion of the pipeline that crosses the property at issue. In March 2021, the BIA issued an order purporting to vacate the BIA's prior orders related to THPP’s alleged trespass and direct the Regional Director of the BIA to reconsider the issue of THPP’s alleged trespass and issue a new order. In April 2021, THPP filed a lawsuit in the District of North Dakota against the United States of America, the U.S. Department of the Interior and the BIA (together, the “U.S. Government Parties”) challenging
the March 2021 order purporting to vacate all previous orders related to THPP’s alleged trespass. On February 8, 2022, the U.S. Government Parties filed their answer and counterclaims to THPP’s suit claiming THPP is in continued trespass with respect to the pipeline and seek disgorgement of pipeline profits from June 1, 2013 to present, removal of the pipeline and remediation. We intend to vigorously defend ourselves against these counterclaims.
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, individually or collectively, 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
LOOP and LOCAP
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 varies 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, 2022.
Dakota Access Pipeline
MPLX holds a 9.19 percent indirect interest in a joint venture (“Dakota Access”) that owns and operates the Dakota Access Pipeline and Energy Transfer Crude Oil Pipeline projects, collectively referred to as the Bakken Pipeline system or DAPL. In 2020, the U.S. District Court for the District of Columbia (the “D.D.C.”) ordered the U.S. Army Corps of Engineers (“Army Corps”), which granted permits and an easement for the Bakken Pipeline system, to prepare an environmental impact statement (“EIS”) relating to an easement under Lake Oahe in North Dakota. The D.D.C. later vacated the easement. The Army Corps expects to release a draft EIS in 2023.
In May 2021, the D.D.C. denied a renewed request for an injunction to shut down the pipeline while the EIS is being prepared. In June 2021, the D.D.C. issued an order dismissing without prejudice the tribes’ claims against the Dakota Access Pipeline. The litigation could be reopened or new litigation challenging the EIS, once completed, could be filed. The pipeline remains operational.
MPLX has entered into a Contingent Equity Contribution Agreement whereby it, along with the other joint venture owners in the Bakken Pipeline system, has agreed to make equity contributions to the joint venture upon certain events occurring to allow the entities that own and operate the Bakken Pipeline system to satisfy their senior note payment obligations. The senior notes were issued to repay amounts owed by the pipeline companies to fund the cost of construction of the Bakken Pipeline system. If the pipeline were temporarily shut down, MPLX would have to contribute its 9.19 percent pro rata share of funds required to pay interest accruing on the notes and any portion of the principal that matures while the pipeline is shutdown. MPLX also expects to contribute its 9.19 percent pro rata share of any costs to remediate any deficiencies to reinstate the permit and/or return the pipeline into operation. If the vacatur of the easement permit results in a permanent shutdown of the pipeline, MPLX would have to contribute its 9.19 percent pro rata share of the cost to redeem the bonds (including the 1% redemption premium required pursuant to the indenture governing the notes) and any accrued and unpaid interest. As of December 31, 2022, our maximum potential undiscounted payments under the Contingent Equity Contribution Agreement were approximately $170 million.
Crowley Blue Water Partners
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. As of December 31, 2022, our maximum potential undiscounted payments under this arrangement was $101 million.
Marathon Oil indemnifications
The separation and distribution agreement and other agreements with Marathon Oil to effect our 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 $160 million as of December 31, 2022, which primarily consist of a commitment to contribute cash to an equity method investee for certain catastrophic events, in lieu of procuring insurance coverage, a commitment to fund a share of the bonds issued by a government entity for construction of public utilities in the event that other industrial users of the facility default on their utility payments, a commitment to pay a termination fee on a supply agreement if terminated during the initial term, 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, 2022, our contractual commitments to acquire property, plant and equipment totaled $289 million. Our contractual commitments to acquire property, plant and equipment totaled $565 million at December 31, 2021, primarily consisting of refining projects which includes the conversion of the Martinez refinery to a renewable diesel facility.
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.
30. Subsequent Events
Incremental $5 Billion Share Repurchase Authorization
On January 31, 2023, we announced that our board of directors approved an incremental $5.0 billion share repurchase authorization. The authorization has no expiration date. We may utilize various methods to effect the repurchases, which could include open market repurchases, negotiated block transactions, accelerated share repurchases, tender offers or open market solicitations for shares, some of which may be effected through Rule 10b5-1 plans. The timing of repurchases will depend upon several factors, including market and business conditions, and repurchases may be discontinued at any time.
MPLX Senior Notes
On February 9, 2023, MPLX issued $1.6 billion aggregate principal amount of senior notes in a public offering, consisting of $1.1 billion aggregate principal amount of 5.00% senior notes due March 2033 and $500 million principal amount of 5.65% senior notes due March 2053.
On February 15, 2023, MPLX used $600 million of the net proceeds to redeem all of the outstanding Series B preferred units. MPLX also provided notice to redeem all of MPLX’s and MarkWest’s $1.0 billion 4.50% senior notes due July 2023.
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