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Marathon Petroleum to boost CapEx, still weighing magnitude of share buybacks

Marathon Petroleum Corp. plans to increase capital investment in 2018, but while reviewing earnings results, company executives provided few specifics about how much cash it would return to shareholders in the future.

The company returned more than $3 billion to shareholders in 2017 through share repurchases and dividends, which were supported in part by proceeds from drop-down transactions completed during the year.

On Jan. 29, the company increased its quarterly dividend, which is payable March 12, by 15% to 46 cents per share.

"I'm not giving specific guidance," Marathon CEO Gary Heminger said during a Feb. 1 earnings call about the company's future plans. "But what we did indicate is that after-tax cash proceeds from the [MPLX drop-down transaction], which [is] closing today, beyond what any adjustments we need to capital structure to support our investment-grade credit profile would be targeted at some form of shareholder returns. … As the share repurchase continues to be an important vehicle for us to give capital back to shareholders that is very tax-efficient, I think you'll continue to see substantial activity there."

The company outlined $3.97 billion in CapEx for 2018, up from $3.05 billion in 2017. Of that $918 million increase, $649 million is being allocated to the firm's midstream segment, in which Marathon plans to invest $2.41 billion. The company plans to boost refining and marketing CapEx by $118 million to $950 million, while it plans to invest $530 million in its retail segment, up $149 million from the year prior.

For the fourth quarter of 2017, the company reported $2.02 billion in earnings on strong performance from its refining and marketing segment. The results include a tax benefit of $1.5 billion stemming from the revaluation of the company's deferred tax liabilities after President Trump signed the U.S. Tax Cut and Jobs Act into law in late 2017.

Including the tax benefit of $3.04 per share, earnings per diluted share were $4.09 for the quarter, beating the S&P Capital IQ consensus GAAP estimate of 98 cents per share.

Heminger said that going forward, he expects the company's effective tax rate to be "a couple of points below" the statutory rate.

"We haven't given specific guidance as to the cash tax benefits, but we have looked at 2017 on sort of an as-is basis with tax reform and it's something on the order of [$400 million to $500 million]," Heminger said. "So again, we're not giving a specific forecast, but it's certainly in that order of magnitude."

Marathon reported refining and marketing segment income from operations in the fourth quarter of 2017 was $732 million, up from $166 million in the year-ago quarter, while midstream segment income grew from $296 million to $343 million over the same period. The company's retail segment, Speedway, saw income from operations decline to $149 million from $165 million.

The company reported refined product sales volumes climbed from 2.2 million barrels per day in the year-ago quarter to 2.4 MMbbl/d as the per-barrel margin increased from $11.31 to $13.12 and crude oil capacity utilization climbed from 93% to 101%.

On a combined basis, including items not allocated to individual segments, income from operations climbed from $553 million in the year-ago quarter to $1.12 billion.

For the year, the company reported earnings of $3.43 billion, or $6.70 per share. Refining and marketing segment income from operations grew from $1.36 billion in 2016 to $2.32 billion in 2017, while Midstream segment income climbed from $1.04 billion to $1.34 billion. Over the same period, retail segment income declined $2 million to $732 million.

On a combined basis, including unallocated items, income from operations climbed from $2.38 billion in 2016 to $3.97 billion in 2017.

Looking ahead, company executives believe the commodities markets will continue to provide a tailwind. The American Petroleum Institute said U.S. petroleum demand reached the highest level for the month in 10 years in December 2017.

"We are encouraged by a more balanced supply and demand environment," Heminger said. "We think this creates a very productive backdrop for refining margins, in addition to generating meaningful midstream development opportunities for MPLX."

As of 12:51 p.m. ET, Marathon's stock was trading 2.94% lower on the day at $67.26 on the New York Stock Exchange.