Paul Cheng: Hi, guys. Good morning. Few questions, if I could. The first one is really simple. Fourth quarter, I think Maryann mentioned that as some favorable inventory benefits. I assume, Maryann, you were referring outside the LIFO impact which you take it as a special item or that’s what you refer. If this is not then can you give us some idea, then how big is that number in the fourth quarter? And secondly, I think you guys talking about a continuing investment, that this year $150 million in the LA refinery system? If I didn’t get it wrong. Can you maybe give us some idea that what all investment we’re talking about? And what all of benefits we could expect from there, is there any changing in terms of the crews lay or energy usage or that product yield? Anything that you could share on that? Thank you.
Maryann Mannen: Hey, Paul, it’s Maryann. So you’re absolutely correct. The inventory benefits that I was discussing, when talking about the capture rate we achieved in the quarter are outside the LIFO benefits. As you’ve seen, we’ve excluded the LIFO benefit from our adjusted results. So I’m talking about commercial performances, obviously, winter storm has impacts on us. And the ability for our teams to address the inventory issues is really what I was referring to when we talk about capturing the quarter not LIFO.
Paul Cheng: Yes, Maryann, can you quantify how roughly — how big is that benefit in the fourth quarter?
Maryann Mannen: Yes, Paul, we’ve not provided that level of detail on each of those individual contributors, inventory, a piece of that, again, I mentioned strong light product margins in the quarter. We saw the benefit of pricing happen on the secondaries. So there were several contributors to the upsides performance, but we typically don’t provide that granular detail on this significance of each one of those.
Tim Aydt : Okay. This is Tim, I’ll take your second question. Relative to the LAR project that we were referring to in the opening remarks, that’s really a project that addresses the next phase of an upcoming regulation that is going to be mandating further NOx reductions. And that’s regulation is going to apply to all of the refineries in the LA basin, not just ours, of course. And so there’s going to be some significant investment required by the industry in order to comply with this. And we believe we have a very unique opportunity at our Los Angeles refining complex to really modernize our utility systems at both Carson and Wilmington facilities in order to meet this Phase 1 and Phase 2 of these reduction requirements. So that’s what’s driving it.
And I think the other thing that’s worth noting is this novel project really goes beyond NOx reductions for us. And it will also reduce our SO2, our particulate matter, or VOCs, and some greenhouse gases. So besides lowering our facility emissions, it’s also going to improve our reliability. And it’s going to reduce our energy usage, which will significantly lower our operating cost. These cost reductions will come in the form of energy efficiency and lower maintenance spend. And the thing we like about it is that these favorable economics are independent of the light product margin fluctuations that can occur. So this was kind of all around the backdrop of the LA refinery is certainly a core asset for us on the West Coast. And it’s part of the value chain.
And it’s already one of the most competitive refineries in the state. So this project is going to further cement its competitive position in California, which is consistent with our strategic initiative of being the most cost-effective refiner in every market we serve. So we expect the project to be completed in 2025. And in time to meet the initial compliance dates for the new regulation. So hopefully, that’s helpful.
Paul Cheng: Yes, what’s the total investment? That $150 million for this year, should we assume $150 million again in 2025. And in terms of the lower energy costs, better efficiency on there? Is there any number you could share to try to quantify what is that benefits?
Tim Aydt : Unfortunately, we generally don’t get into those specific numbers on individual projects and returns but it’s significant in the sense that it’s lowering our emissions and providing a payback.
Paul Cheng: $1 billion CapEx, is it $150 million a year?
Mike Hennigan: Hey, Paul, it’s Mike, we haven’t disclosed the multiyear, we will give more color on that as time goes on. What Tim was trying to say is, it is a multiyear project, and we’re going to start off with it. It’ll be $150 million this year, and we’ll give more color as time goes by.
Operator: Our next question comes from John Royall with JPMorgan.
John Royall: Hye, guys. Good morning. Thanks for taking my question. So just to stick with project growth, and looking at your CapEx budget, and your growth program was about $900 million. That number, I assume will be going down close to Martinez and STAR. So looking into the future, where do you think growth capital goes from here? I think we could structurally lower growth CapEx in 2024 plus, or is there maybe another phase of project we’ll start hearing about going forward? And I know you’ve spoken about the LA project, but just wondering beyond that.
Mike Hennigan: John, it’s Mike, I’ll start off. We’ve broken it into two buckets, traditional refining and low carbon. And it’s our expectation that low carbon bucket will continue to grow over time and at the same time, though, we do have a bunch of projects Tim just mentioned one that will really improve the competitiveness of LA, we have a bunch of those still, that we think we can implement on the traditional refining side as well. So I think you’re going to see a nice blend on both sides of the business there over time. I don’t think you should expect that number to be going meaningfully down. Yes, I know, people have talked a lot about STAR but we have enough projects that we think are attractive returns, we just want to implement them over time and be disciplined on the way that we allocate capital, but I think you’re going to see both buckets and not have an expectation they’re going down, because we still think there’s a decent amount of return on capital opportunities for us in light of what’s been a major return of capital recently from us.
John Royall: Great. That’s really helpful. Thanks. And then maybe just talk about how you’re thinking about the Russia product sanctions that are going to be hitting here on the certain? And how that maybe — how that may trickle through the market? And how long do you think it will take for supply chains to adjust? And then relatedly, if you could just remind us the breakdown of Marathon’s export destinations? How much goes to Latin America? How much goes to Europe? And do you expect to increase your exports to Europe after the fifth?
Brian Partee: Yes, John, this is Brian, I’ll take that. So just really quick on your question on timeline, we do not expect it to really unfold until the second quarter. So leading into the sanctions, as you’d expect, we saw a pretty meaningful de-inventorying coming out of Russia getting out of the sanctions, coupled with a re-inventorying in large parts of Northwest Europe. So as a result, we’re entering the sanction period of time at really historically high levels of inventory, particularly in Europe. So we view it as 2Q and beyond timeline perspective, but directionally, we see it as bullish for cracks. We see 800 million to 1 million barrels a day of I’ll call them structural historical imports into Northwest Europe coming out of Russia, those are going to have to be displaced.
And we do expect a high degree of friction on those barrels, for variety of reasons. Product spec mix, is going to be difficult to place them in other markets. So as you’d expect, you have various regional specifications that need to be met local fuel standards that’s going to propose some headwinds. The global tanker fleet is really pretty active and overburdened right now with differing trade flows on the crude front. And this is going to create another degree of inefficiency on a tanker, global tanker fleet capacity that we think will provide a degree of friction. And the last thing I’d mentioned, unlike crude on the product side, these are generally going to either countries or end consumers that really rely on receipt of the product. So supply assurance is a new variable that’s really important here as well, that is we’re hearing from our customers every day, that’s a really important thing for them.
I think, given the dynamic nature of the situation in Russia, that supply assurance component is really a big unknown, but we feel well, very well positions to take advantage of that, given our position in the Atlantic basin, as you probably know, we opened an office over in London late last year, and are very active in that market. The last point of your question in terms of distribution, without giving too much granular detail, a large portion of them historically have moved into Latin America. We’ve historically exported 250,000 to 350,000 barrels a day, depending around turnaround and unplanned downtime activity within our system, we do see an incremental pull into Europe, we’ve seen that we’ve got some actually really good fit for our Garyville distillate stream because we don’t make jet out of our Garyville facility.
It fits well into Northwest Europe, especially this time of the year. And we’ve seen exports into Northwest Europe late last year and the 120,000 barrels a day for the US into Europe. And we’ve done a meaningful part of that. And we expect to be meaningful part of that going forward.
Rick Hessling: Hey, John, this is Rick, just add on to Brian’s comments. So a couple of points to further drive home how we feel about this market going forward. If you look at winter storm, Elliott in December, when it hit the immediate impact, it had on cracks. And it is again taken our life product inventories, especially here in the US down to levels that are five-year type low numbers, when you compound diesel inventories with VGO and the potential impact that the EU ban on Russian exports will have this could just further exasperate cracks to the positive. So more to watch on this. See how it plays out. I think Mike said earlier, it’s neutral to positive. We’re viewing it as a positive, especially if the cutbacks and sanctions take hold like most people think they will.
Operator: Our next question will come from Sam Margolin with Wolfe Research.
