Edgar Filing: Marathon Petroleum Corp

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2017



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-35054

Marathon Petroleum Corporation

(Exact name of registrant as specified in its charter)



Delaware		27-1284632
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

539 South Main Street, Findlay, Ohio		45840-3229
(Address of principal executive offices)		(Zip code)

(419) 422-2121

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	x	Accelerated filer	¨

Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No x

There were 488,412,170 shares of Marathon Petroleum Corporation common stock outstanding as of October 27, 2017.

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MARATHON PETROLEUM CORPORATION

Form 10-Q

Quarter Ended September 30, 2017

INDEX



	Page
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Income (Unaudited)	3
Consolidated Statements of Comprehensive Income (Unaudited)	4
Consolidated Balance Sheets (Unaudited)	5
Consolidated Statements of Cash Flows (Unaudited)	6
Consolidated Statements of Equity and Redeemable Noncontrolling Interest (Unaudited)	7
Notes to Consolidated Financial Statements (Unaudited)	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	37
Item 3. Quantitative and Qualitative Disclosures about Market Risk	60
Item 4. Controls and Procedures	61
Supplementary Statistics (Unaudited)	62

PART II – OTHER INFORMATION
Item 1. Legal Proceedings	65
Item 1A. Risk Factors	66
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	66
Item 5. Other Information	67
Item 6. Exhibits	68
Signatures	69

Unless otherwise stated or the context otherwise indicates, all references in this Form 10-Q to “MPC,” “us,” “our,” “we” or “the Company” mean Marathon Petroleum Corporation and its consolidated subsidiaries.

GLOSSARY OF TERMS

Throughout this report, the following company or industry specific terms and abbreviations are used:



ATB	Articulated tug barges
barrel	One stock tank barrel, or 42 United States gallons liquid volume, used in reference to crude oil or other liquid hydrocarbons.
bcf/d	One billion cubic feet per day
EBITDA	Earnings Before Interest, Tax, Depreciation and Amortization, a non-GAAP financial measure
EPA	United States Environmental Protection Agency
FASB	Financial Accounting Standards Board
GAAP	Accounting principles generally accepted in the United States
IDR	Incentive Distribution Right
LCM	Lower of cost or market
LIFO	Last in, first out, an inventory costing method
LLS	Louisiana Light Sweet crude oil, an oil index benchmark price
mbpd	Thousand barrels per day
MMBtu	One million British thermal units, an energy measurement
MMcf/d	One million cubic feet of natural gas per day
NGL	Natural gas liquids, such as ethane, propane, butanes and natural gasoline
NYSE	New York Stock Exchange
OTC	Over-the-Counter
ppm	Parts per million
RIN	Renewable Identification Number
SEC	United States Securities and Exchange Commission
ULSD	Ultra-low sulfur diesel
USGC	U.S. Gulf Coast
VIE	Variable interest entity
WTI	West Texas Intermediate crude oil, an oil index benchmark price

Part I – Financial Information

Item 1. Financial Statements

Marathon Petroleum Corporation

Consolidated Statements of Income (Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
(In millions, except per share data)	2017			2016			2017			2016
Revenues and other income:
Sales and other operating revenues (including consumer excise taxes)	$	19,053		$	16,616		$	53,220		$	46,179
Sales to related parties	157			2			458			5
Income (loss) from equity method investments	84			(208		)	224			(236		)
Net gain on disposal of assets	—			1			12			26
Other income	92			49			219			106
Total revenues and other income	19,386			16,460			54,133			46,080
Costs and expenses:
Cost of revenues (excludes items below)	14,605			12,944			41,913			35,475
Purchases from related parties	148			128			420			359
Inventory market valuation adjustment	—			—			—			(370		)
Consumer excise taxes	2,012			1,914			5,751			5,633
Impairment expense	—			—			—			130
Depreciation and amortization	517			507			1,574			1,497
Selling, general and administrative expenses	412			420			1,286			1,199
Other taxes	116			112			339			332
Total costs and expenses	17,810			16,025			51,283			44,255
Income from operations	1,576			435			2,850			1,825
Net interest and other financial income (costs)	(157		)	(141		)	(465		)	(420		)
Income before income taxes	1,419			294			2,385			1,405
Provision for income taxes	415			75			706			481
Net income	1,004			219			1,679			924
Less net income (loss) attributable to:
Redeemable noncontrolling interest	16			16			49			25
Noncontrolling interests	85			58			214			(48		)
Net income attributable to MPC	$	903		$	145		$	1,416		$	947
Per Share Data (See Note 7)
Basic:
Net income attributable to MPC per share	$	1.79		$	0.28		$	2.75		$	1.79
Weighted average shares outstanding	504			527			514			528
Diluted:
Net income attributable to MPC per share	$	1.77		$	0.27		$	2.73		$	1.78
Weighted average shares outstanding	508			530			518			531
Dividends paid	$	0.40		$	0.36		$	1.12		$	1.00

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

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Marathon Petroleum Corporation

Consolidated Statements of Comprehensive Income (Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
(In millions)	2017			2016			2017			2016
Net income	$	1,004		$	219		$	1,679		$	924
Other comprehensive income (loss):
Defined benefit postretirement and post-employment plans:
Actuarial changes, net of tax of $2, $0, $9 and $8	4			2			15			14
Prior service costs, net of tax of ($4), ($5), ($12) and ($14)	(7		)	(8		)	(20		)	(23		)
Other comprehensive loss	(3		)	(6		)	(5		)	(9		)
Comprehensive income	1,001			213			1,674			915
Less comprehensive income (loss) attributable to:
Redeemable noncontrolling interest	16			16			49			25
Noncontrolling interests	85			58			214			(48		)
Comprehensive income attributable to MPC	$	900		$	139		$	1,411		$	938

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

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Marathon Petroleum Corporation

Consolidated Balance Sheets (Unaudited)



(In millions, except share data)	September 30, 2017			December 31, 2016
Assets
Current assets:
Cash and cash equivalents (MPLX: $3 and $234, respectively)	$	2,088		$	887
Receivables, less allowance for doubtful accounts of $10 and $12 (MPLX: $328 and $304, respectively)	3,900			3,617
Inventories (MPLX: $64 and $55, respectively)	5,493			5,656
Other current assets (MPLX: $30 and $33, respectively)	150			241
Total current assets	11,631			10,401
Equity method investments (MPLX: $3,997 and $2,471, respectively)	4,769			3,827
Property, plant and equipment, net (MPLX: $11,922 and $11,408, respectively)	26,036			25,765
Goodwill (MPLX: $2,245 and $2,245, respectively)	3,586			3,587
Other noncurrent assets (MPLX: $485 and $506, respectively)	784			833
Total assets	$	46,806		$	44,413
Liabilities
Current liabilities:
Accounts payable (MPLX: $576 and $541, respectively)	$	6,159		$	5,593
Payroll and benefits payable (MPLX: $1 and $1, respectively)	459			530
Consumer excise taxes payable (MPLX: $2 and $3, respectively)	371			464
Accrued taxes (MPLX: $42 and $35, respectively)	361			153
Debt due within one year (MPLX: $1 and $1, respectively)	29			28
Other current liabilities (MPLX: $107 and $81, respectively)	268			378
Total current liabilities	7,647			7,146
Long-term debt (MPLX: $6,848 and $4,422, respectively)	12,753			10,544
Deferred income taxes (MPLX: $7 and $6, respectively)	3,935			3,861
Defined benefit postretirement plan obligations	1,029			1,055
Deferred credits and other liabilities (MPLX: $209 and $189, respectively)	640			604
Total liabilities	26,004			23,210
Commitments and contingencies (see Note 21)
Redeemable noncontrolling interest	1,000			1,000
Equity
MPC stockholders’ equity:
Preferred stock, no shares issued and outstanding (par value 0.01 per share, 30 million shares authorized)	—			—
Common stock:
Issued – 733 million and 731 million shares (par value 0.01 per share, 1 billion shares authorized)	7			7
Held in treasury, at cost – 235 million and 203 million shares	(9,118		)	(7,482		)
Additional paid-in capital	11,236			11,060
Retained earnings	11,044			10,206
Accumulated other comprehensive loss	(239		)	(234		)
Total MPC stockholders’ equity	12,930			13,557
Noncontrolling interests	6,872			6,646
Total equity	19,802			20,203
Total liabilities, redeemable noncontrolling interest and equity	$	46,806		$	44,413

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

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Marathon Petroleum Corporation

Consolidated Statements of Cash Flows (Unaudited)



	Nine Months Ended September 30,
(In millions)	2017			2016
Increase (decrease) in cash and cash equivalents
Operating activities:
Net income	$	1,679		$	924
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred financing costs and debt discount	46			47
Impairment expense	—			130
Depreciation and amortization	1,574			1,497
Inventory market valuation adjustment	—			(370		)
Pension and other postretirement benefits, net	(32		)	(21		)
Deferred income taxes	57			335
Net gain on disposal of assets	(12		)	(26		)
(Income) loss from equity method investments	(224		)	236
Distributions from equity method investments	252			199
Changes in the fair value of derivative instruments	101			6
Changes in:
Current receivables	(296		)	(209		)
Inventories	163			71
Current accounts payable and accrued liabilities	654			237
All other, net	(99		)	(54		)
Net cash provided by operating activities	3,863			3,002
Investing activities:
Additions to property, plant and equipment	(1,928		)	(2,147		)
Acquisitions, net of cash acquired	(249		)	—
Disposal of assets	64			88
Investments – acquisitions, loans and contributions	(730		)	(240		)
– redemptions, repayments and return of capital	64			20
All other, net	164			62
Net cash used in investing activities	(2,615		)	(2,217		)
Financing activities:
Commercial paper – issued	300			1,063
– repayments	(300		)	(1,063		)
Long-term debt – borrowings	2,661			714
– repayments	(470		)	(2,112		)
Debt issuance costs	(28		)	(11		)
Issuance of common stock	27			8
Common stock repurchased	(1,622		)	(177		)
Dividends paid	(578		)	(529		)
Issuance of MPLX LP common units	473			499
Issuance of MPLX LP redeemable preferred units	—			984
Distributions to noncontrolling interests	(505		)	(389		)
Contributions from noncontrolling interests	128			4
Contingent consideration payment	(89		)	(164		)
All other, net	(44		)	(30		)
Net cash used in financing activities	(47		)	(1,203		)
Net increase (decrease) in cash and cash equivalents	1,201			(418		)
Cash and cash equivalents at beginning of period	887			1,127
Cash and cash equivalents at end of period	$	2,088		$	709

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

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Marathon Petroleum Corporation

Consolidated Statements of Equity and Redeemable Noncontrolling Interest (Unaudited)



	MPC Stockholders’ Equity
(In millions)	Common Stock		Treasury Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Non-controlling Interests			Total Equity			Redeemable Non-controlling Interest
Balance as of December 31, 2015	$	7	$	(7,275	)	$	11,071		$	9,752		$	(318	)	$	6,438		$	19,675		$	—
Net income (loss)	—		—			—			947			—			(48		)	899			25
Dividends declared	—		—			—			(530		)	—			—			(530		)	—
Distributions to noncontrolling interests	—		—			—			—			—			(380		)	(380		)	(9		)
Contributions from noncontrolling interests	—		—			—			—			—			4			4			—
Other comprehensive loss	—		—			—			—			(9		)	—			(9		)	—
Shares repurchased	—		(177		)	—			—			—			—			(177		)	—
Shares issued (returned) – stock-based compensation	—		(7		)	8			—			—			—			1			—
Stock-based compensation	—		—			39			—			—			6			45			—
Impact from equity transactions of MPLX LP	—		—			(113		)	—			—			542			429			—
Issuance of MPLX LP redeemable preferred units	—		—			—			—			—			—			—			984
Balance as of September 30, 2016	$	7	$	(7,459	)	$	11,005		$	10,169		$	(327	)	$	6,562		$	19,957		$	1,000
Balance as of December 31, 2016	$	7	$	(7,482	)	$	11,060		$	10,206		$	(234	)	$	6,646		$	20,203		$	1,000
Net income	—		—			—			1,416			—			214			1,630			49
Dividends declared	—		—			—			(578		)	—			—			(578		)	—
Distributions to noncontrolling interests	—		—			—			—			—			(456		)	(456		)	(49		)
Contributions from noncontrolling interests	—		—			—			—			—			128			128			—
Other comprehensive loss	—		—			—			—			(5		)	—			(5		)	—
Shares repurchased	—		(1,622		)	—			—			—			—			(1,622		)	—
Shares issued (returned) – stock-based compensation	—		(14		)	27			—			—			—			13			—
Stock-based compensation	—		—			37			—			—			5			42			—
Impact from equity transactions of MPLX LP	—		—			112			—			—			335			447			—
Balance as of September 30, 2017	$	7	$	(9,118	)	$	11,236		$	11,044		$	(239	)	$	6,872		$	19,802		$	1,000

(Shares in millions)	Common Stock		Treasury Stock
Balance as of December 31, 2015	729		(198		)
Shares repurchased	—		(4		)
Shares issued (returned) – stock-based compensation	2		(1		)
Balance as of September 30, 2016	731		(203		)
Balance as of December 31, 2016	731		(203		)
Shares repurchased	—		(31		)
Shares issued (returned) – stock-based compensation	2		(1		)
Balance as of September 30, 2017	733		(235		)

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

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Notes to Consolidated Financial Statements (Unaudited)

1. Description of the Business and Basis of Presentation

Description of the Business—Our business consists of refining and marketing, retail and midstream services conducted primarily in the Midwest, Gulf Coast, East Coast, Northeast and Southeast regions of the United States, through subsidiaries, including Marathon Petroleum Company LP (“MPC LP”), Speedway LLC and its subsidiaries (“Speedway”) and MPLX LP and its subsidiaries (“MPLX”).

See Note 9 for additional information about our operations.

Basis of Presentation—All significant intercompany transactions and accounts have been eliminated.

These interim consolidated financial statements are unaudited; however, in the opinion of our management, these statements reflect all adjustments necessary for a fair statement of the results for the periods reported. All such adjustments are of a normal, recurring nature unless otherwise disclosed. These interim consolidated financial statements, including the notes, have been prepared in accordance with the rules of the SEC applicable to interim period financial statements and do not include all of the information and disclosures required by GAAP for complete financial statements.

These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2016. The results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of the results to be expected for the full year.

Certain prior period financial statement amounts have been reclassified to conform to current period presentation.

In the first quarter of 2017, we revised our segment reporting in connection with the contribution of certain terminal, pipeline and storage assets to MPLX. See Note 3 for additional information. The operating results for these assets are now reported in our Midstream segment. Previously, they were reported as part of our Refining & Marketing segment. Comparable prior period information has been recast to reflect our revised presentation. The results for the pipeline and storage assets were recast effective January 1, 2015, and the results for the terminal assets were recast effective April 1, 2016. Prior to these dates, these assets were not considered businesses for accounting purposes and, therefore, there are no financial results from which to recast segment results. Additionally, the MPLX asset and liability balances as of December 31, 2016, reported in parentheses on our consolidated balance sheets, have also been recast to reflect this transaction. See Note 9 and Note 13 for additional information.

2. Accounting Standards

Recently Adopted

In October 2016, the FASB issued an accounting standards update to amend the consolidation guidance issued in February 2015 to require that a decision maker consider, in the determination of the primary beneficiary, its indirect interest in a VIE held by a related party that is under common control on a proportionate basis only. The change was effective for our financial statements for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. We were required to apply the standard retrospective to January 1, 2016, the date on which we adopted the consolidation guidance issued in February 2015. Adoption of this accounting standards update in the first quarter of 2017 did not have an impact on our consolidated financial statements.

In March 2016, the FASB issued an accounting standards update to simplify some provisions in stock compensation accounting. The areas for simplification involve the accounting for share-based payment transactions, including income tax consequences, classifications of awards as either equity or liabilities and classification within the statement of cash flows. The changes were effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Adoption of this accounting standards update in the first quarter of 2017 did not have a material impact on our consolidated financial statements.

In March 2016, the FASB issued an accounting standards update eliminating the requirement that an investor retrospectively apply equity method accounting when an investment that it had accounted for by another method initially qualifies for the equity method. This change was effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Adoption of this accounting standards update in the first quarter of 2017 did not have an impact on our consolidated financial statements.

Not Yet Adopted

In August 2017, the FASB issued accounting standards update to amend the hedge accounting rules to simplify the application of hedge accounting guidance and better portray the economic results of risk management activities in the financial statements.

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The guidance expands the ability to hedge nonfinancial and financial risk components, reduces complexity in fair value hedges of interest rate risk, eliminates the requirement to separately measure and report hedge ineffectiveness, as well as eases certain hedge effectiveness assessment requirements. The guidance is effective beginning in 2019 with early adoption permitted. We are currently evaluating the impact of this guidance, including transition elections and required disclosures, on our financial statements and the timing of adoption.

In May 2017, the FASB issued an accounting standards update to provide guidance about when changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. An entity should account for the effects of a modification unless the fair value, vesting conditions and balance sheet classification of the modified award is the same as the original award immediately before the original award is modified. We will adopt this accounting standards update January 1, 2018. This update should be applied prospectively to an award modified on or after the adoption date. We do not expect the application of this accounting standards update to have a material impact on our consolidated financial statements.

In March 2017, the FASB issued an accounting standards update requiring that the service cost component of pension and postretirement benefit costs be presented in the same line item as other current employee compensation costs and other components of those benefit costs be presented separately from the service cost component and outside a subtotal of income from operations, if presented. The update also requires that only the service cost component of pension and postretirement benefit cost is eligible for capitalization. We will adopt this accounting standards update January 1, 2018. Application is retrospective for the presentation of the components of these benefit costs and prospective for the capitalization of only service costs. We do not expect the application of this accounting standards update to have a material impact on our consolidated financial statements.

In February 2017, the FASB issued an accounting standards update addressing the derecognition of nonfinancial assets. The guidance defines in substance nonfinancial assets, and states that the derecognition of business activities should be evaluated under the consolidation guidance, with limited exceptions related to conveyances of oil and gas mineral rights or contracts with customers. The standard eliminates the previous exclusion for businesses that are in-substance real estate, and eliminates some differences based on whether a transferred set is that of assets or a business and whether the transfer is to a joint venture. The standard must be implemented in conjunction with the implementation date of the revenue recognition accounting standards update, which we will implement January 1, 2018. We plan to adopt the new standard using the modified retrospective method and do not expect the application of this accounting standards update to have a material impact on our consolidated financial statements.

In January 2017, the FASB issued an accounting standards update which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the new guidance, the recognition of an impairment charge is calculated based on the amount by which the carrying amount exceeds the reporting unit’s fair value, which could be different from the amount calculated under the current method using the implied fair value of the goodwill; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The guidance should be applied on a prospective basis, and is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.

In January 2017, the FASB issued an accounting standards update to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The standard is intended to narrow the definition of a business by specifying the minimum inputs and processes and by narrowing the definition of outputs. The change is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The guidance will be applied prospectively and early adoption is permitted for certain transactions.

In November 2016, the FASB issued an accounting standards update requiring that the statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. The change is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. Retrospective application is required. Application of this accounting standards update will not have a material impact on our statements of cash flows.

In October 2016, the FASB issued an accounting standards update that requires recognition of the income tax consequences of intra-entity transfers of assets other than inventory when the transfer occurs. The change is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The amendments in this accounting standards update should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. We do not expect application of this accounting standards update to have a material impact on our consolidated financial statements.

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In August 2016, the FASB issued an accounting standards update related to the classification of certain cash flows. The accounting standards update provides specific guidance on eight cash flow classification issues, including debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination and distributions received from equity method investees, to reduce diversity in practice. The change is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. Retrospective application is required. We do not expect application of this accounting standards update to have a material impact on our statements of cash flows.

In June 2016, the FASB issued an accounting standards update related to the accounting for credit losses on certain financial instruments. The guidance requires that for most financial assets, losses be based on an expected loss approach which includes estimates of losses over the life of exposure that considers historical, current and forecasted information. Expanded disclosures related to the methods used to estimate the losses as well as a specific disaggregation of balances for financial assets are also required. The change is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. We do not expect application of this accounting standards update to have a material impact on our consolidated financial statements.

In February 2016, the FASB issued an accounting standards update requiring lessees to record virtually all leases on their balance sheets. The accounting standards update also requires expanded disclosures to help financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. For lessors, this amended guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. The change will be effective on a modified retrospective basis for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. We are currently evaluating the impact of this standard on our financial statements and disclosures, internal controls and accounting policies. This evaluation process includes reviewing all forms of leases, performing a completeness assessment over the lease population and analyzing the practical expedients in order to determine the best path of implementing changes to existing processes and controls along with necessary system implementations. We do not plan to early adopt the standard. We believe the impact will be material on the consolidated financial statements as all leases will be recognized as a right of use asset and lease obligation. Based on results of our evaluation process to date, we also believe the impact on our existing processes, controls and information systems may be material.

In January 2016, the FASB issued an accounting standards update requiring unconsolidated equity investments, not accounted for under the equity method, to be measured at fair value with changes in fair value recognized in net income. The accounting standards update also requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes and the separate presentation of financial assets and liabilities by measurement category and form on the balance sheet and accompanying notes. The accounting standards update eliminates the requirement to disclose the methods and assumptions used in estimating the fair value of financial instruments measured at amortized cost. Lastly, the accounting standards update requires separate presentation in other comprehensive income of the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when electing to measure the liability at fair value in accordance with the fair value option for financial instruments. The changes are effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2017. Early adoption is permitted only for the guidance regarding presentation of a liability’s credit risk. We do not expect application of this accounting standards update to have a material impact on our consolidated financial statements.

In May 2014, the FASB issued an accounting standards update for revenue recognition for contracts with customers. The guidance in the accounting standards update states that revenue is recognized when a customer obtains control of a good or service. Recognition of the revenue will involve a multiple step approach including identifying the contract, identifying the separate performance obligations, determining the transaction price, allocating the price to the performance obligations and recognizing the revenue as the obligations are satisfied. Additional disclosures will be required to provide adequate information to understand the nature, amount, timing and uncertainty of reported revenues and revenues expected to be recognized. We will adopt the standard January 1, 2018, using the modified retrospective method, which will result in a cumulative effect adjustment as of the date of adoption. We are currently evaluating the impact of this standard on our financial statements and disclosures, internal controls and accounting policies. Based on the results to date, we have reached tentative conclusions for most contract types and do not believe revenue recognition patterns will change materially. We do expect certain contracts in our Midstream segment to be presented on a gross revenue recognition basis as a result of implementation. In addition, we expect to elect to change our presentation of consumer excise taxes incurred concurrently with revenue producing transactions from gross to net upon the adoption of this accounting standards update. Based on the results of our evaluation process to date, we do not expect our existing revenue recognition processes, controls and information systems to materially change.

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3. MPLX LP

MPLX is a diversified, growth-oriented publicly traded master limited partnership formed by us to own, operate, develop and acquire midstream energy infrastructure assets. On December 4, 2015, MPLX and MarkWest Energy Partners, L.P. (“MarkWest”) completed a merger, whereby MarkWest became a wholly-owned subsidiary of MPLX (the “MarkWest Merger”). MarkWest’s operations include: natural gas gathering, processing and transportation; and NGL gathering, transportation, fractionation, storage and marketing. MPLX owns or has an interest in a network of private and common carrier crude oil and product pipeline systems and associated storage assets in the Midwest and Gulf Coast regions of the United States, a butane cavern in Neal, West Virginia, and NGL storage caverns in Woodhaven, Michigan. MPLX owns an inland marine business, comprised of tow boats and barges, which transport crude oil and refined products principally for MPC in the Midwest and Gulf Coast regions of the United States. MPLX also owns a light-product terminal business, which provides terminalling services principally for MPC in the Midwest and Southeast regions of the United States.

See Note 4 for information on MPLX’s acquisition of the Ozark pipeline, its investment in the Bakken Pipeline system and the formation of a joint venture with Antero Midstream Partners LP (“Antero Midstream”) during the first quarter of 2017.

As of September 30, 2017, we owned a 30.4 percent interest in MPLX, including a two percent general partner interest. MPLX is a VIE because the limited partners of MPLX do not have substantive kick-out or substantive participating rights over the general partner. We are the primary beneficiary of MPLX because in addition to significant economic interest, we also have the power, through our 100 percent 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 69.6 percent interest owned by the public. The components of our noncontrolling interest consist of equity-based noncontrolling interest and redeemable noncontrolling interest. The redeemable noncontrolling interest relates to MPLX’s preferred units, discussed below.

The creditors of MPLX do not have recourse to MPC’s general credit through guarantees or other financial arrangements. The assets of MPLX are the property of MPLX and cannot be used to satisfy the obligations of MPC. MPC has effectively guaranteed certain indebtedness of LOOP LLC (“LOOP”) and LOCAP LLC (“LOCAP”), in which MPLX holds an interest. See Note 21 for more information.

Reorganization Transactions

On September 1, 2016, MPC, MPLX and various affiliates initiated a series of reorganization transactions in order to simplify MPLX’s ownership structure and its financial and tax reporting. In connection with these transactions, MPC contributed $225 million to MPLX and all of the issued and outstanding MPLX Class A Units, all of which were held by MarkWest Hydrocarbon L.L.C. (“MarkWest Hydrocarbon”), a subsidiary of MPLX, were exchanged for newly issued common units representing limited partner interests in MPLX. The simple average of the NYSE closing price of MPLX common units for the 10 trading days preceding September 1, 2016 was used for purposes of these transactions. As a result of these transactions, MPC increased its ownership interest in MPLX by 7 million MPLX common units, or approximately 1 percent.

Private Placement of Preferred Units

On May 13, 2016, MPLX completed the private placement of approximately 30.8 million 6.5 percent Series A Convertible Preferred Units (the “MPLX Preferred Units”) for a cash price of $32.50 per unit. The aggregate net proceeds of approximately $984 million from the sale of the MPLX Preferred Units was used by MPLX for capital expenditures, repayment of debt and general partnership purposes.

The MPLX Preferred Units rank senior to all MPLX common units with respect to distributions and rights upon liquidation. The holders of the MPLX Preferred Units are entitled to receive quarterly distributions equal to $0.528125 per unit commencing for the quarter ended June 30, 2016, with a prorated amount from the date of issuance. Following the second anniversary of the issuance of the MPLX Preferred Units, the holders of the MPLX Preferred Units will receive as a distribution the greater of $0.528125 per unit or the amount of per unit distributions paid to holders of MPLX common units. The MPLX Preferred Units are convertible into MPLX common units on a one for one basis after three years, at the purchasers’ option, and after four years at MPLX’s option, subject to certain conditions.

The MPLX Preferred Units are considered redeemable securities due to the existence of redemption provisions upon a deemed liquidation event which is considered outside MPLX’s control. Therefore, they are presented as temporary equity in the mezzanine section of the consolidated balance sheets. We have recorded the MPLX Preferred Units at their issuance date fair value, net of issuance costs. Since the MPLX Preferred Units are not currently redeemable and not probable of becoming redeemable in the future, adjustment to the initial carrying amount is not necessary and would only be required if it becomes probable that the security would become redeemable.

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Dropdowns to MPLX

On September 1, 2017, we contributed our joint-interest ownership in certain pipelines and storage facilities to MPLX in exchange for total consideration of $1.05 billion. This consideration consisted of MPLX equity and $420 million in cash. We received approximately 19 million MPLX common units and 378 thousand general partner units from MPLX, which was determined by dividing $630 million by the simple average of the 10 day trading volume weighted average NYSE price of an MPLX common unit for the 10 trading days ending at market close on August 31, 2017, pursuant to a Membership Interests and Shares Contributions Agreement. We also agreed to waive two-thirds of the third quarter 2017 common unit distributions, IDRs and general partner distributions with respect to the common units issued in this transaction. The contributions of these assets were accounted for as transactions between entities under common control and we did not record a gain or loss.

On March 1, 2017, we contributed certain terminal, pipeline and storage assets to MPLX in exchange for total consideration of $2.0 billion. This consideration consisted of MPLX equity and $1.5 billion in cash. We received approximately 13 million MPLX common units and 264 thousand general partner units from MPLX, which was determined by dividing $504 million by the simple average of the volume weighted average NYSE price of an MPLX common unit for the 10 trading days preceding February 28, 2017, pursuant to a Membership Interests Contributions Agreement. We also agreed to waive two-thirds of the first quarter 2017 common unit distributions, IDRs and general partner distributions with respect to the common units issued in this transaction. The contributions of these assets were accounted for as transactions between entities under common control and we did not record a gain or loss.

On March 31, 2016, we contributed our inland marine business to MPLX in exchange for 23 million MPLX common units and 460 thousand general partner units. The number of units we received from MPLX was determined by dividing $600 million by the simple average of the volume weighted average NYSE price of an MPLX common unit for the 10 trading days preceding March 14, 2016, pursuant to a Membership Interests Contribution Agreement. We also agreed to waive first-quarter 2016 common unit distributions, IDRs and general partner distributions with respect to the common units issued in this transaction. The contribution of our inland marine business was accounted for as a transaction between entities under common control and we did not record a gain or loss.

Public Offerings

On February 10, 2017, MPLX completed a public offering of $1.25 billion aggregate principal amount of 4.125% unsecured senior notes due March 2027 and $1.0 billion aggregate principal amount of 5.200% unsecured senior notes due March 2047. MPLX used the net proceeds from this offering to fund the $1.5 billion cash portion of the consideration MPLX paid MPC for the dropdown of assets on March 1, 2017, as well as for general partnership purposes. See Note 16 for more information.

ATM Program

On August 4, 2016, MPLX entered into a Second Amended and Restated Distribution Agreement (the “Distribution Agreement”) providing for the continuous issuance of common units, in amounts, at prices and on terms to be determined by market conditions and other factors at the time of any offerings (such continuous offering program, or at-the-market program, referred to as the “ATM Program”). MPLX expects to use the net proceeds from sales under the ATM Program for general partnership purposes including repayment of debt and funding for acquisitions, working capital requirements and capital expenditures.

During the nine months ended September 30, 2017, MPLX issued an aggregate of 14 million MPLX common units under the ATM Program, generating net proceeds of approximately $473 million. As of September 30, 2017, $1.74 billion of MPLX common units remain available for issuance through the ATM Program under the Distribution Agreement.

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Noncontrolling Interest

Changes in MPC’s equity and the offsetting changes to noncontrolling interest resulting from changes in MPC’s and the noncontrolling interest’s ownership interests in MPLX were as follows:



	Nine Months Ended September 30,
(In millions)	2017			2016
Transfers (to) from noncontrolling interest
Increase (decrease) in MPC's additional paid in capital for the issuance of MPLX LP common units to the public	$	25		$	(43	)
Increase in MPC's additional paid in capital for the issuance of MPLX LP common units and general partner units to MPC	113			—
Net transfers (to) from noncontrolling interests	138			(43		)
Tax impact	(26		)	(70		)
Change in MPC's additional paid-in capital, net of tax	$	112		$	(113	)

Agreements

We have various long-term, fee-based transportation, terminal and storage services agreements with MPLX. Under these agreements, MPLX provides transportation, terminal and storage services to us, and we commit to provide MPLX with minimum quarterly throughput volumes on crude oil and refined products systems and minimum storage volumes of crude oil, refined products and butane. 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.

4. Acquisitions and Investments

Acquisition of Ozark Pipeline

On March 1, 2017, MPLX acquired the Ozark pipeline from Enbridge Pipelines (Ozark) LLC for approximately $219 million, including purchase price adjustments made in the second quarter of 2017. Based on the fair value of assets acquired and liabilities assumed at the acquisition date, the final purchase price was primarily allocated to property, plant and equipment. The Ozark pipeline is a 433-mile, 22-inch crude oil pipeline originating in Cushing, Oklahoma, and terminating in Wood River, Illinois, capable of transporting approximately 230 mbpd. We account for the Ozark pipeline within the Midstream segment.

The amounts of revenue and income from operations associated with the acquisition included in our consolidated statements of income, since the March 1, 2017 acquisition date, are as follows:



	Three Months Ended September 30,		Seven Months Ended September 30,
(In millions)	2017		2017
Sales and other operating revenues (including consumer excise taxes)	$	19	$	45
Income from operations	6		17

Assuming the acquisition of the Ozark pipeline had occurred on January 1, 2016, the consolidated pro forma results would not have been materially different from reported results.

Formation of Travel Plaza Joint Venture

In the fourth quarter of 2016, Speedway and Pilot Flying J finalized the formation of a joint venture consisting of travel plazas, primarily in the Southeast United States. The new entity, PFJ Southeast LLC (“PFJ Southeast”), originally consisted of 41 existing locations contributed by Speedway and 82 locations contributed by Pilot Flying J, all of which carry either the Pilot or Flying J brand and are operated by Pilot Flying J. We did not recognize a gain on the $273 million non-cash contribution of our travel plazas to the joint venture since the contribution was that of in-substance real estate. Our non-cash contribution consisted of $203 million of property, plant and equipment, $62 million of goodwill and $8 million of inventory.

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Marine Investments

We currently have indirect ownership interests in two ocean vessel joint ventures with Crowley Maritime Corporation (“Crowley”), which were established to own and operate Jones Act vessels in petroleum product service. We have invested a total of $189 million in these two ventures as described further below.

In September 2015, we acquired a 50 percent ownership interest in a joint venture, Crowley Ocean Partners LLC (“Crowley Ocean Partners”), with Crowley. The joint venture owns and operates four new Jones Act product tankers, three of which are leased to MPC. Two of the vessels were delivered in 2015 and the remaining two were delivered in 2016. We have contributed a total of $141 million for the four vessels.

In May 2016, MPC and Crowley formed a new ocean vessel joint venture, Crowley Coastal Partners LLC (“Crowley Coastal Partners”), in which MPC has a 50 percent ownership interest. MPC and Crowley each contributed their 50 percent ownership in Crowley Ocean Partners, discussed above, into Crowley Coastal Partners. In addition, we contributed $48 million in cash and Crowley contributed its 100 percent ownership interest in Crowley Blue Water Partners LLC (“Crowley Blue Water Partners”) to Crowley Coastal Partners. Crowley Blue Water Partners is an entity that owns and operates three 750 Series ATB vessels that are leased to MPC. We account for our 50 percent interest in Crowley Coastal Partners as part of our Midstream segment using the equity method of accounting.

See Note 5 for information on Crowley Coastal Partners as a VIE and Note 21 for information on our conditional guarantee of the indebtedness of Crowley Ocean Partners and Crowley Blue Water Partners.

Investment in Pipeline Company

On February 15, 2017, MPLX closed on the previously announced transaction to acquire a partial, indirect equity interest in the Dakota Access Pipeline (“DAPL”) and Energy Transfer Crude Oil Company Pipeline (“ETCOP”) projects, collectively referred to as the Bakken Pipeline system, through a joint venture with Enbridge Energy Partners L.P. (“Enbridge Energy Partners”). The Bakken Pipeline system is currently expected to deliver in excess of 470 mbpd of crude oil from the Bakken/Three Forks production area in North Dakota to the Midwest through Patoka, Illinois and ultimately to the Gulf Coast. MPLX contributed $500 million of the $2 billion purchase price paid by the joint venture, MarEn Bakken Company LLC (“MarEn Bakken”), to acquire a 36.75 percent indirect equity interest in the Bakken Pipeline system from Energy Transfer Partners, L.P. (“ETP”) and Sunoco Logistics Partners, L.P. (“SXL”). MPLX holds, through a subsidiary, a 25 percent interest in MarEn Bakken, which equates to an approximate 9.2 percent indirect equity interest in the Bakken Pipeline system. In connection with this investment by MPLX, we have agreed to waive our right to receive IDRs of approximately $1.6 million per quarter for twelve consecutive quarters beginning with distributions declared by MPLX in the first quarter of 2017 and paid to us in the second quarter, which has been prorated to $0.8 million from the acquisition date. We account for the investment in MarEn Bakken as part of our Midstream segment using the equity method of accounting.

In connection with closing the transaction with ETP and SXL and the previous decision to indefinitely suspend the Sandpiper project, Enbridge Energy Partners canceled MPC’s transportation services agreement with respect to the Sandpiper pipeline and released MPC from paying any termination fee per that agreement.

Formation of Gathering and Processing Joint Venture

Effective January 1, 2017, MarkWest and Antero Midstream formed a joint venture, Sherwood Midstream LLC (“Sherwood Midstream”), to support the development of Antero Resources Corporation’s Marcellus Shale acreage in West Virginia. MarkWest has a 50 percent ownership interest in Sherwood Midstream. In connection with this transaction, MarkWest contributed certain gas processing plants currently under construction at the Sherwood Complex with a fair value of approximately $134 million and cash of approximately $20 million. Antero Midstream made an initial capital contribution of approximately $154 million.

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

Effective January 1, 2017, MarkWest and Sherwood Midstream formed a joint venture, Sherwood Midstream Holdings LLC (“Sherwood Midstream Holdings”), for the purpose of owning, operating and maintaining all of the shared assets for the benefit of and use in the operation of the gas plants and other assets owned by Sherwood Midstream and the gas plants and deethanization facilities owned by MarkWest. MarkWest contributed certain real property, equipment and facilities with a fair value of approximately $209 million to Sherwood Midstream Holdings in exchange for a 79 percent initial ownership interest. Sherwood Midstream contributed cash of approximately $44 million to Sherwood Midstream Holdings in exchange for a 21

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percent ownership interest. MarkWest has a 10.5 percent indirect interest in Sherwood Midstream Holdings through its ownership in Sherwood Midstream. The net book value of the contributed assets was approximately $203 million. The contribution was determined to be an in-substance sale of real estate. As such, MarkWest only recognized a gain for the portion attributable to Antero Midstream’s indirect interest of approximately $2 million.

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

See Note 5 for additional information related to the investments in Sherwood Midstream, Ohio Fractionation and Sherwood Midstream Holdings.

5. Variable Interest Entities

In addition to MPLX, as described in Note 3, the following entities are also VIEs.

Crowley Coastal Partners

In May 2016, Crowley Coastal Partners was formed to own an interest in both Crowley Ocean Partners and Crowley Blue Water Partners. We have determined that Crowley Coastal Partners is a VIE based on the terms of the existing financing arrangements for Crowley Blue Water Partners and Crowley Ocean Partners and the associated debt guarantees by MPC and Crowley. Our maximum exposure to loss at September 30, 2017 was $493 million, which includes our equity method investment in Crowley Coastal Partners and the debt guarantees provided to each of the lenders to Crowley Blue Water Partners and Crowley Ocean Partners. We are not the primary beneficiary of this VIE because we do not have the power to control the activities that significantly influence the economic outcomes of the entity and, therefore, do not consolidate the entity.

MarkWest Utica EMG

On January 1, 2012, MarkWest Utica Operating Company, LLC (“Utica Operating”), a wholly-owned and consolidated subsidiary of MarkWest, and EMG Utica, LLC ("EMG Utica") (together the "Members"), executed agreements to form a joint venture, MarkWest Utica EMG LLC (“MarkWest Utica EMG”), to develop significant natural gas gathering, processing and NGL fractionation, transportation and marketing infrastructure in eastern Ohio.

As of September 30, 2017, MarkWest had a 56 percent ownership interest in MarkWest Utica EMG. MarkWest Utica EMG's inability to fund its planned activities without subordinated financial support qualify it as a VIE. Utica Operating is not deemed to be the primary beneficiary due to EMG Utica’s voting rights on significant matters. We account for our ownership interest in MarkWest Utica EMG as an equity method investment. MPLX receives engineering and construction and administrative management fee revenue and reimbursement for other direct personnel costs for operating MarkWest Utica EMG. Our maximum exposure to loss as a result of our involvement with MarkWest Utica EMG includes our equity investment, any additional capital contribution commitments and any operating expenses incurred by the subsidiary operator in excess of compensation received for the performance of the operating services. Our equity investment in MarkWest Utica EMG at September 30, 2017 was $2.2 billion.

Ohio Gathering

Ohio Gathering Company, L.L.C. (“Ohio Gathering”) is a subsidiary of MarkWest Utica EMG and is engaged in providing natural gas gathering services in the Utica Shale in eastern Ohio. Ohio Gathering is a joint venture between MarkWest Utica EMG and Summit Midstream Partners, LLC. As of September 30, 2017, we had a 34 percent indirect ownership interest in Ohio Gathering. As this entity is a subsidiary of MarkWest Utica EMG, which is accounted for as an equity method investment, MPLX reports its portion of Ohio Gathering’s net assets as a component of its investment in MarkWest Utica EMG. MPLX receives engineering and construction and administrative management fee revenue and reimbursement for other direct personnel costs for operating Ohio Gathering.

Sherwood Midstream

As described in Note 4, MarkWest and Antero Midstream formed a joint venture, Sherwood Midstream, to support the development of Antero Resources Corporation’s Marcellus Shale acreage in West Virginia. As of September 30, 2017, MarkWest had a 50 percent ownership interest in Sherwood Midstream. Sherwood Midstream’s inability to fund its planned activities without additional subordinated financial support qualify it as a VIE. MarkWest is not deemed to be the primary beneficiary, due to Antero Midstream’s voting rights on significant matters. We account for our ownership interest in Sherwood Midstream using the equity method of accounting. Our maximum exposure to loss as a result of our involvement with Sherwood Midstream includes our equity investment, any additional capital contribution commitments and any operating expenses incurred by the subsidiary operator in excess of compensation received for the performance of the operating services. Our equity investment in Sherwood Midstream at September 30, 2017 was $220 million.

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Ohio Fractionation

As described in Note 4, MarkWest converted all of its ownership interests in Ohio Fractionation to Class A Interests and amended its LLC Agreement to create Class B-3 Interests, which were sold to Sherwood Midstream, providing it with the right to fractionation revenue and the obligation to pay expenses related to 20 mbpd of capacity in the Hopedale 3 fractionator. Ohio Fractionation’s inability to fund its operations without additional subordinated financial support qualify it as a VIE. MarkWest has been deemed to be the primary beneficiary of Ohio Fractionation because it has control over decisions that could significantly impact its financial performance, and as a result, consolidates Ohio Fractionation.

Sherwood Midstream Holdings

As described in Note 4, MarkWest and Sherwood Midstream entered into a joint venture, Sherwood Midstream Holdings, for the purpose of owning, operating and maintaining all of the shared assets for the benefit of and use in the operation of the gas plants and other assets owned by Sherwood Midstream and the gas plants and deethanization facilities owned by MarkWest. MarkWest had an initial 79 percent direct ownership in Sherwood Midstream Holdings, in addition to a 10.5 percent indirect interest through its ownership in Sherwood Midstream. Sherwood Midstream Holdings’ inability to fund its operations without additional subordinated financial support qualify it as a VIE. We account for our ownership interest in Sherwood Midstream Holdings using the equity method of accounting as Sherwood Midstream is considered to be the general partner and controls all decisions related to Sherwood Midstream Holdings. Our maximum exposure to loss as a result of our involvement with Sherwood Midstream Holdings includes our equity investment, any additional capital contribution commitments and any operating expenses incurred by the subsidiary operator in excess of compensation received for the performance of the operating services. Our equity investment in Sherwood Midstream Holdings at September 30, 2017 was $163 million.

6. Related Party Transactions

Our related parties include:


•	Crowley Blue Water Partners, in which we have a 50 percent indirect noncontrolling interest. Crowley Blue Water Partners owns and operates three Jones Act ATB vessels.


•	Crowley Ocean Partners, in which we have a 50 percent indirect noncontrolling interest. Crowley Ocean Partners owns and operates Jones Act product tankers.


•	Explorer Pipeline Company (“Explorer”), in which we have a 25 percent interest. Explorer owns and operates a refined products pipeline.


•	Illinois Extension Pipeline Company, L.L.C. (“Illinois Extension Pipeline”), in which we have a 35 percent noncontrolling interest. Illinois Extension Pipeline owns and operates the Southern Access Extension (“SAX”) crude oil pipeline.


•	LOCAP, in which we have a 59 percent noncontrolling interest. LOCAP owns and operates a crude oil pipeline.


•	LOOP, in which we have a 51 percent noncontrolling interest. LOOP owns and operates the only U.S. deepwater crude oil port.


•	MarkWest Utica EMG, in which we have a 56 percent noncontrolling interest. MarkWest Utica EMG is engaged in natural gas processing and NGL fractionation, transportation and marketing in Ohio.


•	Ohio Gathering, in which we have a 34 percent indirect noncontrolling interest. Ohio Gathering is a subsidiary of MarkWest Utica EMG providing natural gas gathering service in the Utica Shale region of eastern Ohio.


•	PFJ Southeast, in which we have a 29 percent noncontrolling interest. PFJ Southeast owns and operates travel plazas primarily in the Southeast region of the United States.


•	Sherwood Midstream, in which we have a 50 percent noncontrolling interest. Sherwood Midstream supports the development of Antero Resources Corporation’s Marcellus Shale acreage in West Virginia.


•	Sherwood Midstream Holdings, in which we have an 86 percent direct and indirect noncontrolling interest. Sherwood Midstream Holdings owns certain infrastructure at the Sherwood Complex that is shared by and supports the operation of both the Sherwood Midstream and MarkWest gas processing plants and deethanization facilities.


•	The Andersons Albion Ethanol LLC (“TAAE”), in which we have a 45 percent noncontrolling interest, The Andersons Clymers Ethanol LLC (“TACE”), in which we have a 61 percent noncontrolling interest and The Andersons Marathon Ethanol LLC (“TAME”), in which we have a 67 percent noncontrolling interest. These companies each own and operate an ethanol production facility.


•	Other equity method investees.

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

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Sales to related parties were as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2017		2016		2017		2016
PFJ Southeast	$	155	$	—	$	451	$	—
Other equity method investees	2		2		7		5
Total	$	157	$	2	$	458	$	5

Sales to related parties consists primarily of sales of refined products.

Other income from related parties, which is included in “Other income” on the accompanying consolidated statements of income, were as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2017		2016		2017		2016
MarkWest Utica EMG	$	5	$	5	$	13	$	12
Ohio Gathering	4		5		12		12
Other equity method investees	4		2		14		7
Total	$	13	$	12	$	39	$	31

Other income from related parties consists primarily of fees received for operating transportation assets for our related parties.

Purchases from related parties were as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2017		2016		2017		2016
Crowley Blue Water Partners	$	16	$	16	$	44	$	22
Crowley Ocean Partners	20		15		59		32
Explorer	7		4		7		12
Illinois Extension Pipeline	26		27		75		82
LOCAP	6		6		17		18
LOOP	14		14		53		42
TAAE	22		9		53		29
TACE	9		10		34		39
TAME	20		23		58		67
Other equity method investees	8		4		20		16
Total	$	148	$	128	$	420	$	359

Related party purchases from Crowley Blue Water Partners and Crowley Ocean Partners consist of leasing marine equipment primarily used to transport refined products. Related party purchases from Explorer consist primarily of refined product transportation costs. Related party purchases from Illinois Extension Pipeline, LOCAP, LOOP and other equity method investees consist primarily of crude oil transportation costs. Related party purchases from TAAE, TACE and TAME consist of ethanol purchases.

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Receivables from related parties, which are included in “Receivables, less allowance for doubtful accounts” on the accompanying consolidated balance sheets, were as follows:



(In millions)	September 30, 2017		December 31, 2016
MarkWest Utica EMG	$	2	$	2
Ohio Gathering	2		2
PFJ Southeast	32		40
Other equity method investees	4		1
Total	$	40	$	45

The long-term receivable, which is included in “Other noncurrent assets” on the accompanying consolidated balance sheet, was $1 million at September 30, 2017 and $1 million at December 31, 2016.

Payables to related parties, which are included in “Accounts payable” on the accompanying consolidated balance sheets, were as follows:



(In millions)	September 30, 2017		December 31, 2016
Illinois Extension Pipeline	$	9	$	9
LOCAP	2		2
LOOP	5		6
MarkWest Utica EMG	30		24
TAAE	2		2
TACE	1		4
TAME	2		4
Other equity method investees	13		2
Total	$	64	$	53

7. Income per Common Share

We compute basic earnings per share by dividing net income attributable to MPC by the weighted average number of shares of common stock outstanding. Diluted income per share assumes exercise of certain stock-based compensation awards, provided the effect is not anti-dilutive.

MPC grants certain incentive compensation awards to employees and non-employee directors that are considered to be participating securities. Due to the presence of participating securities, we have calculated our earnings per share using the two-class method.

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	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions, except per share data)	2017		2016		2017		2016
Basic earnings per share:
Allocation of earnings:
Net income attributable to MPC	$	903	$	145	$	1,416	$	947
Income allocated to participating securities	—		—		1		1
Income available to common stockholders – basic	$	903	$	145	$	1,415	$	946
Weighted average common shares outstanding	504		527		514		528
Basic earnings per share	$	1.79	$	0.28	$	2.75	$	1.79
Diluted earnings per share:
Allocation of earnings:
Net income attributable to MPC	$	903	$	145	$	1,416	$	947
Income allocated to participating securities	—		—		1		1
Income available to common stockholders – diluted	$	903	$	145	$	1,415	$	946
Weighted average common shares outstanding	504		527		514		528
Effect of dilutive securities	4		3		4		3
Weighted average common shares, including dilutive effect	508		530		518		531
Diluted earnings per share	$	1.77	$	0.27	$	2.73	$	1.78

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



	Three Months Ended September 30,		Nine Months Ended September 30,
(In millions)	2017	2016	2017	2016
Shares issued under stock-based compensation plans	1	3	1	3

8. Equity

On May 31, 2017, our board of directors approved an additional $3.0 billion share repurchase authorization. This authorization is in addition to its previous authorization, both of which have no expiration date.

As of September 30, 2017, we had $3.94 billion of remaining share repurchase authorization from our board of directors. We may utilize various methods to effect the repurchases, which could include open market repurchases, negotiated block transactions, accelerated share repurchases or open market solicitations for shares, some of which may be affected through Rule 10b5-1 plans. The timing and amount of future repurchases, if any, will depend upon several factors, including market and business conditions, and such repurchases may be discontinued at any time.

Total share repurchases were as follows for the three and nine months ended September 30, 2017 and 2016:



	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions, except per share data)	2017		2016		2017		2016
Number of shares repurchased	8		1		31		4
Cash paid for shares repurchased	$	452	$	51	$	1,622	$	177
Effective average cost per delivered share	$	53.85	$	42.76	$	52.16	$	41.14

As of September 30, 2017, we had agreements to acquire 985,400 common shares for $55 million, which were settled in early October 2017.

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9. Segment Information

In the first quarter of 2017, we revised our segment reporting in connection with the contribution of certain terminal, pipeline and storage assets to MPLX. The operating results for these assets are now reported in our Midstream segment. Previously, they were reported as part of our Refining & Marketing segment. Comparable prior period information has been recast to reflect our revised presentation. The results for the pipeline and storage assets were recast effective January 1, 2015, and the results for the terminal assets were recast effective April 1, 2016. Prior to these dates, these assets were not considered businesses and, therefore, there are no financial results from which to recast segment results.

We have three reportable segments: Refining & Marketing; Speedway; and Midstream. Each of these segments is organized and managed based upon the nature of the products and services it offers.

•

Refining & Marketing – refines crude oil and other feedstocks at our seven refineries in the Gulf Coast and Midwest regions of the United States, purchases refined products and ethanol for resale and distributes refined products through various means, including pipeline and marine transportation, terminal and storage services provided by our Midstream segment. We sell refined products to wholesale marketing customers domestically and internationally, to buyers on the spot market, to our Speedway segment and to independent entrepreneurs who operate Marathon^® retail outlets.


•	Speedway – sells transportation fuels and convenience merchandise in retail markets in the Midwest, East Coast and Southeast regions of the United States.


•	Midstream – includes the operations of MPLX and certain other related operations. The Midstream segment gathers, processes and transports natural gas; gathers, transports, fractionates, stores and markets NGLs; and transports and stores crude oil and refined products principally for the Refining & Marketing segment.

Segment income represents income from operations attributable to the reportable segments. Corporate administrative expenses, except for those attributable to MPLX, and costs related to certain non-operating assets are not allocated to the reportable segments. In addition, certain items that affect comparability (as determined by the chief operating decision maker) are not allocated to the reportable segments.



(In millions)	Refining & Marketing		Speedway		Midstream		Total
Three Months Ended September 30, 2017
Revenues:
Third party	$	13,573	$	4,895	$	585	$	19,053
Intersegment^(a)	2,904		1		369		3,274
Related party	155		2		—		157
Segment revenues	$	16,632	$	4,898	$	954	$	22,484
Segment income from operations^(b)	$	1,097	$	209	$	355	$	1,661
Income from equity method investments	6		20		57		83
Depreciation and amortization^(c)	266		68		169		503
Capital expenditures and investments^(d)	198		108		453		759



(In millions)	Refining & Marketing		Speedway		Midstream		Total
Three Months Ended September 30, 2016
Revenues:
Third party	$	11,284	$	4,848	$	484	$	16,616
Intersegment^(a)	2,798		1		346		3,145
Related party	2		—		—		2
Segment revenues	$	14,084	$	4,849	$	830	$	19,763
Segment income from operations^(b)	$	252	$	209	$	310	$	771
Income from equity method investments^(c)	8		—		51		59
Depreciation and amortization^(c)	267		71		155		493
Capital expenditures and investments^(d)	251		71		410		732

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(In millions)	Refining & Marketing		Speedway		Midstream		Total
Nine Months Ended September 30, 2017
Revenues:
Third party	$	37,485	$	14,070	$	1,665	$	53,220
Intersegment^(a)	8,302		3		1,076		9,381
Related party	452		6		—		458
Segment revenues	$	46,239	$	14,079	$	2,741	$	63,059
Segment income from operations^(b)	$	1,589	$	583	$	996	$	3,168
Income from equity method investments	10		54		139		203
Depreciation and amortization^(c)	805		197		528		1,530
Capital expenditures and investments^(d)(e)	570		221		2,017		2,808



(In millions)	Refining & Marketing		Speedway		Midstream		Total
Nine Months Ended September 30, 2016
Revenues:
Third party	$	31,192	$	13,663	$	1,324	$	46,179
Intersegment^(a)	7,872		2		911		8,785
Related party	5		—		—		5
Segment revenues	$	39,069	$	13,665	$	2,235	$	54,969
Segment income from operations^(b)(f)	$	1,191	$	569	$	752	$	2,512
Income from equity method investments^(c)	10		—		110		120
Depreciation and amortization^(c)	801		203		448		1,452
Capital expenditures and investments^(d)	756		191		1,179		2,126


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


^(b)	Corporate overhead expenses attributable to MPLX are included in the Midstream segment. Corporate overhead expenses are not allocated to the Refining & Marketing and Speedway segments.


^(c)	Differences between segment totals and MPC totals represent amounts related to unallocated items and are included in “Items not allocated to segments” in the reconciliation below.


^(d)	Capital expenditures include changes in capital accruals, acquisitions (including any goodwill) and investments in affiliates.


^(e)	The Midstream segment includes $220 million for the acquisition of the Ozark pipeline and an investment of $500 million in MarEn Bakken related to the Bakken Pipeline system for the nine months ended September 30, 2017.


^(f)	The Refining & Marketing and Speedway segments include inventory LCM benefits of $345 million and $25 million, respectively, for the nine months ended September 30, 2016.

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



	Three Months Ended September 30,						Nine Months Ended September 30,
(In millions)	2017			2016			2017			2016
Segment income from operations	$	1,661		$	771		$	3,168		$	2,512
Items not allocated to segments:
Corporate and other unallocated items^(a)	(86		)	(65		)	(251		)	(194		)
Pension settlement expenses	(1		)	(4		)	(2		)	(7		)
Litigation^(b)	—			—			(86		)	—
Impairments^(c)	2			(267		)	21			(486		)
Net interest and other financial income (costs)	(157		)	(141		)	(465		)	(420		)
Income before income taxes	$	1,419		$	294		$	2,385		$	1,405


^(a)	Corporate and other unallocated items consists primarily of MPC’s corporate administrative expenses and costs related to certain non-operating assets, except for corporate overhead expenses attributable to MPLX, which are included in the Midstream segment. Corporate overhead expenses are not allocated to the Refining & Marketing and Speedway segments.


^(b)	See Note 21 for further information on litigation matters.


^(c)	2017 includes MPC’s share of gains related to the sale of assets remaining from the Sandpiper pipeline project. 2016 relates to impairments of goodwill and equity method investments.

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



	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2017		2016		2017		2016
Segment capital expenditures and investments	$	759	$	732	$	2,808	$	2,126
Less investments in equity method investees^(a)	53		69		730		383
Plus items not allocated to segments:
Corporate and Other	19		14		53		59
Capitalized interest	13		15		39		47
Total capital expenditures^(b)	$	738	$	692	$	2,170	$	1,849


^(a)	The nine months ended September 30, 2017 includes an investment of $500 million in MarEn Bakken related to the Bakken Pipeline system. The nine months ended September 30, 2016 includes an adjustment of $143 million to the fair value of equity method investments acquired in connection with the MarkWest Merger.


^(b)	Capital expenditures include changes in capital accruals. See Note 17 for a reconciliation of total capital expenditures to additions to property, plant and equipment as reported in the consolidated statements of cash flows.

10. Other Items

Net interest and other financial income (costs) was:



	Three Months Ended September 30,						Nine Months Ended September 30,
(In millions)	2017			2016			2017			2016
Interest income	$	7		$	3		$	16		$	5
Interest expense	(172		)	(153		)	(508		)	(455		)
Interest capitalized	14			15			47			47
Other financial costs	(6		)	(6		)	(20		)	(17		)
Net interest and other financial income (costs)	$	(157	)	$	(141	)	$	(465	)	$	(420	)

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11. Income Taxes

The combined federal, state and foreign income tax rate was 29 percent and 26 percent for the three months ended September 30, 2017 and 2016, respectively, and 30 percent and 34 percent for the nine months ended September 30, 2017 and 2016, respectively. The effective tax rate for the three and nine months ended September 30, 2017 was less than the U.S. statutory rate of 35 percent primarily due to certain permanent tax differences related to net income attributable to noncontrolling interests, the domestic manufacturing deduction and equity compensation offset by state and local tax expense. The effective tax rate for the three months ended September 30, 2016 varies from the U.S. statutory rate of 35 percent primarily due to the effects of a lower forecasted annual effective tax rate as compared to the forecasted rate used for the first six months of 2016. The effective tax rate for the nine months ended September 30, 2016 is slightly less than the U.S. statutory rate of 35 percent primarily due to certain permanent tax differences related to the net income attributable to noncontrolling interests (including their proportional share of the goodwill impairment charge recorded by MPLX), the domestic manufacturing deduction and state and local tax expense.

We are continuously undergoing examination of our income tax returns, which have been completed through the 2007 tax year for state returns and the 2009 tax year for our U.S. federal return. As of September 30, 2017, we had $19 million of unrecognized tax benefits.

Prior to its spin-off on June 30, 2011, Marathon Petroleum Corporation was included in the Marathon Oil Corporation (“Marathon Oil”) federal income tax returns for all applicable years. During the third quarter 2017, Marathon Oil received a notice of Final Partnership Administrative Adjustment (“FPAA”) from the IRS for taxable year 2010, relating to certain partnership transactions. Marathon Oil intends to file a U.S. Tax Court petition disputing these adjustments during the fourth quarter of 2017. We received an FPAA for taxable years 2011-2014 for items resulting from the Marathon Oil IRS dispute discussed above. We intend to file a U.S. Tax Court petition in the fourth quarter of 2017 for tax years 2011-2014 to dispute these corollary adjustments. We continue to believe that the issue in dispute is more likely than not to be fully sustained and therefore, no liability has been accrued for this matter.

Pursuant to our tax sharing agreement with Marathon Oil, the unrecognized tax benefits related to pre-spinoff operations for which Marathon Oil was the taxpayer remain the responsibility of Marathon Oil and we have indemnified Marathon Oil accordingly. See Note 21 for indemnification information.

12. Inventories



(In millions)	September 30, 2017		December 31, 2016
Crude oil and refinery feedstocks	$	2,147	$	2,208
Refined products	2,706		2,810
Materials and supplies	486		485
Merchandise	154		153
Total	$	5,493	$	5,656

Inventories are carried at the lower of cost or market value. The cost of inventories of crude oil and refinery feedstocks, refined products and merchandise is determined primarily under the LIFO method. There were no liquidations of LIFO inventories for the nine months ended September 30, 2017.

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13. Property, Plant and Equipment



(In millions)	September 30, 2017		December 31, 2016^(a)
Refining & Marketing	$	19,174	$	18,590
Speedway	5,233		5,078
Midstream	14,489		13,521
Corporate and Other	822		817
Total	39,718		38,006
Less accumulated depreciation	13,682		12,241
Property, plant and equipment, net	$	26,036	$	25,765


^(a)	Prior period balances have been recast in connection with the March 1, 2017 contribution of assets to MPLX. See Note 1for additional information.

14. Fair Value Measurements

Fair Values—Recurring

The following tables present assets and liabilities accounted for at fair value on a recurring basis as of September 30, 2017 and December 31, 2016 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.



	September 30, 2017
	Fair Value Hierarchy
(In millions)	Level 1		Level 2		Level 3		Netting and Collateral^(a)			Net Carrying Value on Balance Sheet^(b)		Collateral Pledged Not Offset
Commodity derivative instruments, assets	$	257	$	—	$	—	$	(257	)	$	—	$	22
Other assets	3		—		—		N/A			3		—
Total assets at fair value	$	260	$	—	$	—	$	(257	)	$	3	$	22

Commodity derivative instruments, liabilities^(c)	$	296	$	—	$	5	$	(296	)	$	5	$	—
Embedded derivatives in commodity contracts^(c)	—		—		52		—			52