Welcome to the MPC Third Quarter Earnings Call. My name is Elan, and I will be your operator for today's call. [Operator Instructions]. Please note that this conference is now being recorded. I will now turn the call over to Kristina Kazarian. Kristina, you may begin.

Welcome to Marathon Petroleum's third quarter 2018 earnings conference call. The slides that accompany this call can be found on our website at marathonpetroleum.com under the Investor Center tab. On the call today are Gary Heminger, Chairman and CEO; Greg Goff, Executive Vice Chairman; Tim Griffith, CFO; Don Templin, President of Refining, Marketing and Supply; Mike Hennigan, President of MPLX; as well as other members of the executive team. We invite you to read the safe harbor statement on Slide 2. It's a reminder that we will be making forward-looking statements during the call and during the question-and-answer session. Actual results may differ materially from what we expect today. Factors that could cause actual results to differ are included there as well as in our filings with the SEC. Now I will turn the call over to Gary Heminger for opening remarks on Slide 3.

Thanks, Kristina. Good morning, and thank you, everyone, for joining our call. Earlier this morning, we reported another impressive quarter. Our net income attributable to MPC was $737 million, and we were pleased to report adjusted EBITDA of approximately $2 billion for the second quarter in a row. Our refining throughput was strong at slightly north of 2 million barrels per day. This was especially impressive, considering we had both our Detroit and Canton refineries in turnaround during the quarter, both of which were completed on time and under budget. Our integrated business model, together with our team's commercial and operational execution, continue to create opportunities for us to capture value, driving over $1.2 billion of cash from operations, which allowed us to return over $600 million to shareholders in the quarter. During the quarter,, we repurchased $400 million of shares, even though our repurchase ability was limited by the proxy solicitation period. Through the first 9 months of this year, we have returned $3.2 billion of capital to our shareholders and remain committed to our strategy of returning excess cash flow going forward. And we expect to resume our repurchase activity shortly as market and other conditions allow. On October 1, we closed on our transaction with Andeavor. Both sets of shareholders demonstrated overwhelming support as we are now the leading integrated downstream energy company in the U.S. As we look forward, we see extraordinary potential across our nationwide platform, including over $1 billion of annual run rate synergies within the first three years. Over the first few months, our teams will be diligently working on integrating the business, deploying the best practices and aligning the cultures. In just the first month, I'm especially impressed with the enthusiasm and energy of our commercial teams. We are already harvesting synergies…

Thanks, Gary. Turning to Slide 4. We reported third quarter earnings of $737 million and income from operations of $1.4 billion. Refining & Marketing delivered strong results with third quarter segment earnings of $666 million. We operated exceptionally well throughout the quarter and achieved 97% utilization across our refining system, despite having our Canton and Detroit refineries in turnaround during the quarter. Within the Midstream segment, which largely reflects the financial results of MPLX, we reported income from operations of $679 million, driven by strong pipeline throughput volumes as well as record gathered process and fractionated volumes during the third quarter. MPLX announced several new projects during the quarter, including planned investments in two long-haul pipelines as well as the acquisition of a Gulf Coast export terminal in Louisiana. We encourage you to listen in on the MPLX call at 11 a.m. this morning to hear more about MPLX's performance and the opportunities across the business. We would also point you to ANDX's call on November 7, as both partnerships will be part of our Midstream segment going forward. On the retail side, Speedway reported income from operations of $161 million. In the third quarter, gasoline and distillate margins continued to be adversely impacted by rising crude oil prices. In a rising market, there is a delay in our ability to react at The Street, which pressures margins. Our focus continues to be optimizing total gasoline contributions between volume and margin as market conditions adjust. While our third quarter earnings materials do not reflect the results for Andeavor, I would like to provide some key statistics for the quarter, which demonstrate continued strong performance in the legacy business. The legacy Andeavor refining segment had throughput of 1.1 million barrels per day, which was roughly 97% utilization. The Andeavor index was $16.03 per barrel for the quarter with a margin capture rate of 80%. Manufacturing cost was $5.50 per barrel. We look forward to reporting on a consolidated basis starting in the fourth quarter when we think the tremendous benefits to combining these two powerful businesses will be evident. As shown on Slide 5, one of the first tangible signs of integration comes from the retail segment. We immediately started converting the Andeavor company-owned and operated stores to the Speedway brand. At the end of October, roughly 90 sites in the St. Paul and Minneapolis markets have been converted, and we expect to complete approximately 200 sites by the end of 2018. These conversions are an important element in the synergy capture we are driving. We are learning each day, implementing the best practices from each organization, and while the conversions of the Speedway stores are an easy first milestone to point out, we look forward to providing more updates across our refining, midstream and retail organizations at our upcoming Investor Day. With that, let me turn our call over to Tim to provide a more detailed walk-through of the financial results for the third quarter.

Thanks, Don. Slide 6 provides earnings on both an absolute and per share basis. For the third quarter 2018, MPC reported earnings of $1.62 per diluted share compared to $1.77 per diluted share last year. Third quarter 2018 earnings of $1.62 per diluted share included pretax charges of $49 million related to pension settlement and transaction costs or approximately $0.08 per share. The bridge on Slide 7 shows the change in earnings by segment over the third quarter last year. The log shows a decline of $431 million in the Refining & Marketing earnings. Approximately $230 million of the variance was driven by the February 1 dropdown transaction as we don't reflect the impact of these drops in prior period segment results. The remaining variance is driven by lower crack spreads and higher turnaround costs in the quarter. Speedway's third quarter results were lower than the same quarter last year by $47 million, primarily related to lower light product margins and higher operating expenses. The $324 million favorable Midstream variance was due to the February 1 drop of refining logistics and fuels distribution services to MPLX as well as higher pipeline volumes and record gathered process and fractionated volumes compared to last year. The unfavorable year-over-year variance in items not allocated to segments was largely due to transaction costs related to the combination of Andeavor and increased employee benefit costs. Interest and financing costs were $82 million higher during the third quarter of this year due to higher debt levels at MPLX compared to last year and $45 million of pension settlement charges in the quarter. Interest and financing costs were -- I'm sorry, income taxes were a benefit as lower taxable income, combined with lower tax rate, resulted in $193 million lower taxes compared to last year. The higher…

Thanks, Tim. [Operator Instructions].

[Operator Instructions]. Our first question today is from Doug Terreson from Evercore ISI.

Congratulations on close of the Andeavor transaction. And then first, Gary, in Refining, your turnaround activity was really high in the Midwest this quarter, and it seemed to be abnormally high during 2018 overall as well. And on this point -- my question is, were higher turnarounds by design somewhat, such as the company is prepared to capture benefits during the 2019, 2020 IMO period or other factors at work? And either way, what are the implications or the profile for refinery utilization given the situation over the next couple of years?

That's a very good question and kind of top on the charts of what we're working on, Doug. First of all, with the -- in combining the new companies, we are really attempting to smooth out these turnarounds so we don't have a lumpy turnaround schedule in any given period. As I look at what we just completed here, there's some work done at El Paso, St. Paul, Detroit, Canton, and we're just about completing a turnaround at Martinez. But especially when you look at those markets around the MidCon, and as I said in my script earlier, we're now going to have 1 million barrels a day -- a little over 1 million barrels a day of refining capacity in and around the WTI in Cushing-related crudes, which is a significant benefit. And we have all that work behind us, and as I say, we're going to really smooth things out going forward into '19 and '20 and believe that '19 is going to be really kind of a soft year in the turnaround space.

Okay, good. That sounds great for utilization. And then also, Tim talked about share repurchases, and just to clarify, my recollection is that you guys were restricted from purchasing shares for about 2/3 of the quarter. So my question is, is that a good approximation? And second, with cash flows that's derived significantly with the transaction, I want to see if you could provide some more color or the plan for share repurchases for the medium term because it seems like we should see a ramp in that area.

Yes, Doug, it's a good question. The -- you're exactly right that we were precluded during the proxy period from doing share repurchase. So actually, $400 million was a pretty good clip given the periods that we could not be in the market. I think you can expect to see that our approach on this and the return of cash beyond the needs of the business is going to be as steadfast as ever. I mean, a big part of the combination, certainly, was the incremental cash flow provided by the transaction. And as the synergies come online, the business continues to perform, I think the expectation that share repurchase will be an important part of our capital allocation is an appropriate assumption.

Our next question is from Neil Mehta from Goldman Sachs.

Gary, I want to start off on your comment in your prepared remarks around the 500,000 barrels a day of Canadian crude that you're taking in right now. It's a big number. So can you talk about kind of what the economics of that crude that you're bringing in? I'm sure not all of it is getting the discounted heavier light barrel. And how much of a tailwind you see that being on a go-forward basis? And to frame that out, if you could just talk about your broader views on Western Canadian differentials from here.

Sure. I'm going to ask Rick Hessling to get into that in more detail. And as you know, as we visited last week, we talked a little bit about the Canadian as well. And not only are we a very large purchaser of WCS, but we're very large in the Syncrude side, which have had tremendous margins, or I should say, differentials as well. But Rick will give you some more detail.

Yes, Neil, it is a very good question. So on the heavy front, as you know, on the WCS side, it's touched $50 under TI; and Syncrude, I think, yesterday touched $32 under. So as Gary mentioned, there's a lot of upside for us. We mentioned our purchases being north of 500,000. We do not share and break down how much is fully discounted and how much isn't. What I can share, though, is that our optionality is significant amongst PADD II, especially when now, when you put in St. Paul Park into the grid, that allows us even more connectivity and optionality to really eke out the most benefit for these advantaged barrels. Going forward, Neil, on discounts, we're bullish. We sit and we see high all-time production in Canada. There are constraints leaving the basin. Rail is limited. Rail is doing slightly over 200 today, and it may get into the 3 to mid-3s in 2019. That certainly will not alleviate the constraints. So we're bullish on the differentials going forward, not only on heavy but light and medium, which we're players in all 3. And really, the relief won't happen, Neil, until you get another big pipeline out of the basin, which, by all accounts, might be lying three and that may be end of 2019 at best.

Appreciate all that color. The follow-up is just on synergies. It gets come out saying that you expect at least $1 billion, know that you've only had the Andeavor assets for a couple of weeks at this point. But just want to get your sense of your conviction around achievability of that $1 billion as most of us use some level of a discount to $1 billion, where you think there's potential upside. Sure, we'll get a little more flavor here in a couple of weeks, but any early thoughts?

Neil, we're going to give you a lot more flavor at the Analyst Day Meeting. And when I hear that people continue to discount this number, I think we're going to really be able to put that to rest at our Analyst Day Meeting because -- and you're right, we now have 31 days under our belt of operating, but we weren't sitting still in the transition period. We're really working hard at what opportunities we could see. I'm going to ask Don. Don has really led the integration team. I'm going to ask Don to give you some -- just some upfront color on what we're seeing. We're already seeing some synergies above and beyond what we had recognized in our due diligence exercise. But I have -- let Don give you some more color.

Yes, Neil, we are really positive on the realization of those synergies. You talked about the $1 billion and we had a ramp that had us at like $480 million in year 1, ramping up to the $1 billion. I'm very confident about achievability, not only of the $1 billion but also of the ramp. To give you some examples, we talked a little bit about, in my prepared comments, around the Speedway conversion. You think about sort of crude acquisition, we have 10 refineries and more than 1.1 million barrels of processing capacity in the MidContinent, Midwest and all sorts of logistics assets. And as Rick mentioned, we are seeing optimization of those logistics assets that are helping us achieve those synergies at a faster pace than we'd originally contemplated when we gave you the numbers. On the refined products side, we've had opportunities to place cargoes now. If we have a customer, we can actually place cargoes from either the West Coast or the Gulf Coast, which wasn't an option before we were combined. And then on the refining side, we mentioned -- Gary mentioned, a couple of turnarounds. We were able to leverage at both St. Paul Park and Martinez. We were able to leverage having supplementing the turnaround teams with MPC employees as well as some of our key contractors. And so both of those turnarounds are coming in under budget -- or came in under budget and ahead of schedule. So I think those are sort of 4 tangible examples, retail, crude acquisition, refined product supply and what we're doing on the refining side that give us a lot of confidence about our ability to deliver.

Our next question is from Paul Cheng from Barclays Capital.

Two questions. In the integration or any merger, I think oftentimes people overlook the importance on the back office just some support, how that integration. We have seen many cases that they fell because they didn't do a good job on that. So on that basis that maybe -- I know it's early, but perhaps you guys can give us some idea that how that process has been conduct and what kind of pipeline and [indiscernible] opportunity we are seeing from that. And also that, from that standpoint, will you have the system in place so that you can help us from the outside to track and reconcile your synergy benefit back to the financial result?

Yes, Paul, it's Tim. We certainly take the point that getting back up the systems, pulled together and integrated will be an important part, and I think we've recognized that from the outset. There are a couple of systems integration processes that are still underway within the legacy Andeavor business. We'll continue to get those complete, done right, and we will, in very short order, take up the process of evaluating exactly what the plans would be on the systems side to come into full integration. We are not in a position at this time to give you a time line over what that -- over what time period that will take, but it will be a big focus. I think importantly for the synergies themselves, though, this is not a massive component of the achievement. I mean, there's certainly a small segment of the synergies that will be part of the systems integration, but some of the items that Don mentioned are really the lion's share where those synergies are going to be driven. So it is not a gating item. It is not a critical path on the synergy achievement that we expect to see over time, but we'll clearly stay focused on it as we go in again. The -- with regard to the reporting out, I mean, I think we recognize and expect full well that we are going to be bringing and accounting around the synergies to the market on a regular basis. I mean, we'll -- again, I think we'll share some color at Investor Day and beyond, but we will be building a -- sort of a framework and reporting protocol to share exactly what the progress has been and what the color has been as we go along the way. So this is something that's high in the radar. Whether the systems integrate or not, we'll have the full ability and anticipate reporting out in our progress along the way. So appreciate the question, Paul.

So, Paul, let me add on to that. One of the things that we really want investors to understand, and it's what next week having a kind of our top 100 management team men for a full meeting, one of the things you need to recognize in a transaction like this is you need to step back and understand the scale, and you have to have a vision for how big this company has become. And the scale is going to be one of the most important parts, not only to driving synergy but to driving efficiency. And so I really want to -- we're going to strive and we're going to talk about scale a lot with investors. So that's what we're seeing already. And some of the early synergies that we're capturing that we had anticipated is that scale is very, very important. And you get the scale running down the track in the same direction. It could be a very, very positive of that with a lot of momentum behind it. So that's really the point that I want to get across to investors.

I totally agree, I mean, that the scale, I think, is going to be phenomenal in your advantage at this point. The second question, if I may, on Speedway. Historically that Marathon, using a one brand strategy, one brand in the retail, one brand in the wholesale or in the [indiscernible] market, and this legacy is multi-brand. And so how exactly that going forward that you guys going to be in the brand strategy? And how fast are you going to move on that?

Sure. Well, Paul, as we mentioned, we're already completing the turnaround of the St. Paul, Minnesota and Wisconsin assets from SuperAmerica into Speedway. We expect that to be done by the end of the year. From there, we have crews doing 7 to 8 stores every day. We're able to turn those stores that quick. And that -- when we say turn the store, that's not just putting signs out on the pumps and at the street. That's remerchandising the store and putting your backroom system and the managers, the entire store as well. And from there, we'll get those completed here in December, and then we're going to move to the west and southwest and start probably in the El Paso and Arizona market, starting to rebrand those into Speedway. Now as we go out to Southern California, Northern California, the ARCO brand is a very, very strong brand. We're continuing our analysis. We won't have the crews freed up to be able to go further west until probably mid-'19 to later '19. So we're completing our analysis on what brands we may want to use in that market. As I said, ARCO is a very strong brand. Speedway has a very strong brand and a very strong convenience store merchandising component. And then in addition, as you said, there is a potpourri of many other brands that have been used historically. It is our intent that we're going to whittle this down to either one or maybe a handful of other brands and locations by the time we complete. And then at the same time, the jobber business that you're familiar with that we have branded Marathon, there are a large number of brands that have been used on the jobber dealer side in Andeavor in the past. We will expect to take the majority of those to the Marathon brand over time. Again, it will take us a little while to finish up the analysis as we meet with some of our suppliers and as we meet with our customers as well to determine which brands, but predominant brand going forward on that side of the business will be Marathon.

Our next question is from Phil Gresh from JPMorgan.

First question, just wanted to follow up one more time on the crude exposures because you mentioned 1 million barrels a day of advantaged crudes. How do you think about the Bakken exposure for the pro forma company at this point? Obviously, the differentials have widened up quite a bit. I'm just wondering how you think about your advantage access there and then just if you have a view of how much of this is temporary for maintenance versus more structural because of pipeline or real capacity constraints.

Yes, Phil, it's a good point. And you recall, when we invested in the Dakota Access Pipeline, it gives us that ability to bring Bakken crude down into our PADD II refineries. It gives us the ability to run it now in some of our MidCon refineries. As you know, Greg and his team have taken Bakken to the west of the rail and other methods of transportation. So we have tremendous optionality, to use Rick's term, on being able to move Bakken around our system. But let me ask Rick to get into the details of what he's seeing and talk about the structure of the market.

Yes, Phil, I'm really glad you brought this up. A lot of people want to talk Canadian and want to talk Midland. And really, Bakken is kind of the forgotten basin, if you will, and it's extremely important to us. Yesterday, Beaver Lodge, which is an origin point that feeds DAPL, trade at $14 -- at a $14 differential. So unheard of, by all accounts, every report we hear is that basin is flushed with barrels. Really similar to the Canadian story, Phil, it's flushed with barrels, and there's no way out. And there's no immediate relief, Phil, that we can see. Rail can only do so much. And as we head into winter, you're going to have rail constraints, the difficulties of loading rail out. So we kind of see that's the perfect storm we had in our St. Paul Park refinery now. That gives us, as Gary said, more optionality, connectivity. We have the DAPL Pipeline that feeds barrels to us right into Patoka, where we can go throughout our PADD II system, as well as we can also take their barrels to Southern Access Extension or Ozark. So we have multiple ways of getting barrels to multiple plants, and we're very bullish this differential here going forward.

And just to clarify, the Bakken is in the 1 million barrels a day of advantaged crudes that you're speaking to.

Yes, correct.

Okay. Second question would just be -- this might be a difficult one, but to the extent you can talk a little bit to the Andeavor performance in the quarter, realize you may not be able to give hard financials, but it would be helpful to at least understand since we don't have anything publicly available to us.

Sure. Greg, would you like to handle that?

Yes, I sure will. It's a good question, Phil. I would say, if I look back at the third quarter, the -- as Don stated, we had refinery utilization right around 97%, ran a little bit more than 1.1 million barrels per day, and we had a strong index for the quarter. The index for the quarter was a little bit more than $16.50 a barrel. We didn't have -- the maintenance that Gary alluded to earlier basically started in October. So we ran, from a refining standpoint, very strong in the quarter. We also successfully continued the Los Angeles project, and the cat cracker in Los Angeles that we intended to shut down is now shut down. And we've begun moving feedstocks through some of the pipelines between the 2 parts of the facility. So that project is on target, and the success there is it positions us well for IMO because, as you're aware, it allows us to run another 40,000 barrels a day or so of distillates over gasoline as the market trades distillate higher than gasoline. The marketing business performed volumes were strong, but like the comments on Speedway with the rising crude price environment, the margins were off a little bit versus our plan but overall results across the system, we had strong volumes. We continue to grow in Mexico when -- we're seeing very good success in Mexico as part of our integrated strategy for the business model. And the logistics business performed extremely well. Kind of touching upon Rick's last comment on the Bakken, we're seeing really strong growth in our crude oil system up in North Dakota. Likewise, the growth and development of the Permian system is continuing to blossom and develop, just like we expected. And with the participation in the Gray Oak Pipeline, it will allow the company to access the crude that we gather from the wellhead and take it into the system however we want to, whether Corpus Christi or other places. And so I would say overall that the business performed very, very well, and it's right on target with very strong financial results.

And, Phil, one more thing I'll add to that, and this kind of goes back to the questions on the confidence of being able to capture the synergies. When you look at how well the legacy Andeavor assets performed in the third quarter, how well the MPC assets, even though we had a couple turnarounds, how well we performed in the utilization rates while we had this major transaction going on, I think that illustrates that we can execute on big projects. As we've done in the past with all the big projects we've done over our life over the last 7 years, we execute and we complete big projects on time and usually on or below budget. I think that was represented here in how well both sides performed while we had integration process going on. And that's -- again, it gives us tremendous confidence going forward we'll be able to execute.

Yes. And I would just add to that. I know that there have been a few questions on the synergies and how the integration process is going in. I would just offer from my experience of doing this type of stuff that I am extremely confident that what we've identified as opportunities -- because at the end of the day, synergies or ideas and opportunities that people in the organization have come up with and what we identified initially, we've been able to confirm. But it's been very -- it's been interesting and exciting to see the opportunities that happen right out of the starting gate in that. And so from my personal experience and the work that I've been doing, I am extremely confident in what we're doing. And I would reinforce Don's summary of kind of the things that he said, and I just think we're going to have a very robust delivery of synergies over time that will surprise people.

Our next question is from Roger Read from Wells Fargo.

I guess to keep on with the theme here of crude differentials, crude capture, we've had some other companies on both sides of the border talk about apportionment issues with the pipelines. And I was just curious what you -- or how you think about your deliverability of the Canadian crudes, whether heavy or light, what kind of apportionment issues you may be seeing and whether or not the earlier comments about the advantages around the SPP unit being added helped on that front.

Yes, let me ask Rick to take that, Roger.

Yes. So, Roger, ultimately, the apportionment that Enbridge has had out of the basin has been pretty consistent, plus or minus 5%. We predicted every month and we usually come in within 1% or 2%. And to be frank, if you look at what the barrels we received in the past with what we receive in current month and what we believe we'll receive going forward, we're very confident with the numbers we've shared to date going forward. So I can't speak to anyone else's view on apportionment, but from our standpoint, it's been relatively consistent and we see it that way going forward.

And along those lines, thinking of the 1 million barrels total, is it fair to say it's probably about around terms 30-70 heavy, light? Or are you closer to -- not exactly but maybe closer to a 50-50 level on that if you go to full flexibility?

Yes, it would be closer to 2/3, 1/3, but I would caution you that fluctuates month-to-month. It's really all based on refinery runs, are we looking to run more gas, more diesel, and obviously, the differentials. So I would caution you not to get locked in on a specific percentage because that does fluctuate month-to-month significantly.

Yes, Roger, that 2/3, 1/3 -- this is Don, that 2/3, 1/3 is really a reference to the Canadian acquisition -- or Canadian crudes that we're acquiring.

Our next question is from Doug Leggate from Bank of America Merrill Lynch.

I hate to hark on about the differentials, but I'm going to do that as well, sorry. So just on -- obviously, Canadian heavy has been particularly weak here, and you guys are ideally positioned to take advantage of that. I'm just curious if you can offer your prognosis as to how you think it plays out as a huge amount of downtime in PADD II comes back online. But more importantly, Gary, your ability to move crudes around your system has been an anchor of the whole strategy you built at Marathon. I'm just wondering, when you look at the opportunities to do something around logistics and moving crudes specifically in the Andeavor network, do you see any obvious advantages? Because I'd like to say Greg had done a pretty good job on that as well. I'm just curious if you see any significant shifts in that 1 million barrels a day across the -- on a proportional basis across the combined company.

Well, Doug, I'll give you a narrative that the answer is yes. I'm not going to -- I can't share with you the individual areas that we have already seen that we can capture some additional value because it's a very competitive market there. I shared some -- a few years ago a different system, and it only took 60 days and that evaporated from a competitive standpoint. So I'm not going to get into the details, but yes, we're seeing in and around the Northern Pipeline systems. And when you step back and look at what it costs to rail, to rail out of Canada or to rail out of the Bakken to PADD I, $15, $16 a barrel, and then you back into our MidCon, PADD II, PADD IV systems today, that gives us a tremendous advantage over the next barrel that's trying to move out of that market. So I would just say we've captured very early some additional synergies, commercial synergies that we had not recognized in our initial due diligence, and I'll just leave it at that, Doug.

I assume we can get into some of that detail in December, Gary, hopefully or not.

Okay.

Okay. My follow-up, if I may, is just a pickup on a comment that Greg made relating to gasoline, distillate and the whole IMO situation. And I do really just -- hoping for a high-level perspective from whoever you think is best equipped to answer the question. But it seems to us that one of the big question marks is if diesel really does get the spike everyone is expecting. There's a pretty relatively easy fix in terms of cat feed as a low-cost equivalent bunker fuel. I'm just curious if you can offer your perspective as to how that might cap any diesel premium that could evolve as a result of IMO, and I'm obviously thinking specifically about the European market. I'll leave it there.

All right. Let's have Ray Brooks, who runs all refining, touch on that, Doug.

Yes. If I understand your question, it plays into sweet gas oil as well as ULSD. And certainly, from our standpoint, we position ourselves really well across our entire 16-plant system to make a whole lot of ULSD. We also have the ability to bring in additional sour gas oil if needed and make sweet gas oil for our system. So is that really what you're getting at?

A huge range of uncertainty and a wide range of expectations out there. What I'm really trying to understand is if gasoline is as weak as it's been, I'm thinking Brent-based tracked European refineries, this is probably the best thing to happen to them in 20 years. But it seems to us that you could cap that upside by swinging cat feed into the bunker fuel market and essentially improving the supply side of what is expected to be a tight supply dynamic. I'm just wondering if you think we're getting that wrong. Is that something you think about as well? And ultimately, what do you think the endgame would be if that was the case?

At this point, none of our plants would have us essentially slacking our cat crackers and then blending that cat feed. Our models going forward see very good opportunities for running our cat crackers. We have taken the opportunity to change our catalyst mix and our cat crackers to swing more toward petrochemicals, but we don't have any forward look that slacks our cat cracker at this point.

Yes. Doug, you -- the equipment you have, the processing facilities you have, you absolutely maximize those to the full extent. You may change a little bit of your feedstock, but the way we are set up, whether it's cat feed, whether it's light crude or whether it's heavy crude, we will absolutely maximize the amount of diesel we can make, no matter what feedstocks are available. We will top those facilities out.

Our next question is from Manav Gupta from Crédit Suisse.

Gary, earlier in the year, you were working very closely with Washington to improve the situation on RINs, and looks like some of what you did, plus other steps, have been a big problem solver. Now a lot of people forget that MPC does have retail, but it's still exposed to RINs and -- so was Andeavor. So can you talk a little bit about how this lower RIN prices will be -- quantify how much a benefit it will be to the combined entity, MPC plus Andeavor?

You're right, Manav. And in fact, I will go back to Washington again next week to -- I don't know, to chat about this. But our big push has been to have a refresh, if you will, of the renewable fuel standard. And while that has not happened yet, you really step back and say -- and look at the numbers, RINs have gone from $1.25 back in 2016, 2017, down to $0.78 this week. So we have made a tremendous amount of progress. It has to do with lower refinery -- or small refinery exemptions and the accounting of RINs beyond that. So we have had a tremendous improvement in the cost of the RINs. I'll ask Tim to -- if he can answer your question on what that value is. But as I said, we have made a lot of progress. We're not fully where we think the market needs to go and where the administration needs to go as far as fixing this RFS problem, but we're continuing to work on it diligently. Tim, can you answer the question on the value side?

Sure. Manav, you've probably seen and we've, I think, said this on multiple occasions over the last couple of years that we are not believers that RIN costs are -- drive differential profitability within the refining system. I think we are -- we have a pretty convicted view that as RIN prices arise, it gets reflected in the crack, and on a net basis, the system is no better or worse off than where things are at. So I'm not sure we'd highlighted an incremental benefit to the lower RINs costs. It certainly introduces a lot less noise into the market relative to -- so what the real economic cracks are, but we would not identify any natural economic benefit in total to the system related to the lower prices.

A very quick follow-up. You're cracking about 3.5 million to 4 million barrels of capacity coming from Permian to the Gulf Coast. What's your outlook for 2021 for light sweet crude on the Gulf Coast? Would the entire MPC's refining system become an advantage system just like the MidCon as all this Permian crude flows into the Gulf Coast?

Well, you've just touched on kind of our thesis, what we think is going to play out over time. As we've said in the past, Manav, we can run 70% light slate or 70% medium sour to heavy slate. With all of the light sweet crude that's being exported out of the market and with the number that Middle East producers wanted to continue to have their market share not erode in the Gulf Coast, we believe the medium sour will become kind of the crude de jure because so much light sweet crude is going to be exported, and competitively, the foreign players are not going to want to have to come and compete with that. So we believe that we are very, very well positioned, whether it's an air of life, which kind of has a gravity to more look like Mars, we believe that is going to be a very strong feedstock for us going into the future. And as I said earlier, we have the ability to run tremendous amount of medium sours, heavies, or we can keep it in the light range. The other thing that's so important that -- let me ask Mike Hennigan to just talk a second about the big pipeline projects coming out of the Permian and our strategy. Greg Goff had done the deal on Gray Oak Pipeline. Now we're looking at the Permian to Gulf Coast Pipeline. We're looking at Swordfish, example for the Eastern Gulf. So we have tremendous opportunities there that I think helps our feedstock supply as well. Mike, you want to talk about that strategy?

Sure, Gary. So, Manav, what we've been doing on the logistics side to support MPC's refining system is what we call the Permian to Gulf Coast Pipeline, which will enable Delaware Basin and Midland Basin crudes be originated out in Wink or Crane or Midland and come down into the Houston, Texas City market as well as other markets. But one of the main drivers is the supply to Galveston Bay refinery. We've also expanded the Ozark Pipeline as well as the Wood River to Patoka Pipeline to get Cushing light material up into that area. And as Gary mentioned as well, we're also looking at what the market needs from an overall standpoint as far as exports. And we've talked to -- and we'll talk a little bit more on the later call on the Swordfish Pipeline, which is existing assets that we think is going to be very competitive and connecting that Eastern Gulf system to refineries into the export markets. So we're very attuned to the point that you made about light sweet growth. We're trying to maximize our ability to get that to markets, whether it be the refining systems at MPC or others and also into the export market.

Our next question is from Prashant Rao from Citigroup.

I guess my first one, I wanted to touch on crude sourcing. And I think you guys have touched upon this already on the call, but waterborne crude, particularly, I think, is sort of the other side of the question when you're talking about getting more domestic heavy discounted barrels than light barrels. And so just wanted to get some color on the current market. We've seen Maya differentials come in, maybe the Gulf Coast. Waterborne heavy barrels have been a little bit more difficult, they were in 3Q. So that's -- part one is sort of to ask about that in the Gulf Coast. But then also pro forma for the company if you look at PADD V as well, what we've heard from some other peers that waterborne heavier barrels were maybe a little bit more challenging compared to domestic versus ANS out there. So I wanted to get your thoughts around that, too, and maybe initiatives around sort of managing crude costs sort of more in the medium term pro forma for company in both of those regions.

Rick?

Yes, this is Rick. So first off, on the Maya piece, Maya has been extremely expensive. Its formula, as you know, follows basically WTS as well as some other domestic grades. So with everything strengthening, Maya has kind of priced itself out of the market. The good news from our front on Maya is we run very little Maya, and we are able to pivot away from Maya and have great optionality to bring in other heavies. On the market tightening, I would agree with that, that it had tightened for a period of time, but I would tell you at this 10 seconds and looking forward, we're seeing a window where the market is now the avails looks good, the economics behind the avails look good, both on heavy and air of gulf crudes as well as Latin American and crudes really throughout the -- throughout and around the globe. So we believe the pinchpoint of the tightness in the market is kind of clearing, and we believe better days are ahead, certainly, with optionality into the Gulf with all waterborne crudes.

Okay. And I guess to follow up, so a little bit more specific to the quarter and thinking it carries forward to the end of the year here. When I look at the variance year-on-year, understanding and appreciating the $230 million from MPLX, that's unfavorable. There's still $190 million or so in that minus $419 million negative variance in the other category. I know that's a mix of things. But just wanted to get a sense of if there's anything -- color you can give on that in the quarter and maybe how we should be thinking about that going forward. Sounds like in general, things are positive and we should see a strong 4Q here given the Canadian heavy barrels' turnaround season is being completed and maybe some better crack realizations. So just wanted to make sure that we're thinking about things right in terms of how we're looking at the cadence Q-on-Q and then maybe into early '19.

Yes, Prashant, it's Tim. The -- that $419 million in other really reflects almost entirely the services being paid to MPLX for the refinery logistics assets and fuels distribution. So that is the lion's share of that delta versus last year. It's probably inappropriate assumption these on a going-forward basis because those are agreements that will be in place for an extended period of time.

Our next question is from Brad Heffern from RBC Capital Markets.

I'll just skip it to one given we're past the top of the hour here. But I was wondering, Gary, if you could give your thoughts on the E15 year round waiver. And I'm particularly interested in your thoughts from a Speedway standpoint as to whether you see value in having an E15 offering and sort of what your assessment of the long-term demand impact is on gasoline.

Okay. I'll just give you a very quick summary. We could talk a long time about this. But probably less than 1% of the stations in America today are offering E15. We have analyzed it in many different ways, and if you look at the -- still the biggest issue is a majority of the vehicles on the road today will not warrant anything greater than E10, unless you have a flex-fueled vehicle. So as we continue to study that, the procedures and implementation processes are not out yet from the EPA on how they would implement this. We question whether or not they really have the authority to grant this E15 waiver year round. Adding incrementally, it's 3 months beyond what's already in the marketplace today. So it's not -- we kind of look at it as being de minimis. However, E85 -- excuse me, E15, the way it's marketed, is at 88 Octane. There will be a number of issues you would have to be able to counter such as misfueling. So we continue to analyze this. We need to see, Brad, what the procedures are that come out from the EPA before we make a final determination. But I think the best thing that has happened throughout all of this, it's kind of been neutral to the overall market, but Brent prices have really continued to decline.

Sounds great, operator. I think we'll end there. So thank you, everyone, for joining us today, and thank you for your interest in MPC. Should you have additional questions or would like clarification on any of the topics discussed this morning, we will be available to take your calls. Operator, that's it.

Thank you. And this does conclude today's conference. You may disconnect at this time.