Marathon Petroleum Corp. (MPC), which operates the nation’s largest refining system and a bundle of midstream assets across the Lower 48, said Covid-19-related travel restrictions and social distancing measures have created increased risks that its customers may not be able to fulfill their obligations on time, if at all.
In a Securities and Exchange Commission Form 8-K filing, the Findlay, OH-based refiner said the decline in market prices for products held in inventory would lead to a “charge that is likely to be material” in 1Q2020 results.
MPC is scheduled to issue its quarterly report on May 5.
If crude prices were to remain low for a sustained period, there could be “significant financial constraints on certain producers from which we acquire our crude oil, which could result in long-term crude oil supply constraints for our business. Such conditions could also result in an increased risk that our customers and other counterparties may be unable to fully fulfill their obligations in a timely manner, or at all.”
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Several of the nation’s largest oil producers have begun shutting in oil wells, including ConocoPhillips, Continental Resources Corp. and Cimarex Co. The Energy Information Administration said petroleum product demand in the United States fell to 13.8 million b/d in the week ending April 10, the lowest level since at least the early 1990s, when the agency began publishing such data.
MPC has more than 3 million b/d of crude capacity in 16 refineries. MPC also owns the general partner and majority limited partner interest in MPLX LP, has midstream operations across the Lower 48, including the Permian Basin, and with MarkWest Energy Partners LP, it owns a mix of midstream and natural gas liquids assets.
In March and through April, MPC has reduced the amount of crude it processes in response to the decreased demand for products. It also has idled “portions of refining capacity to further limit production.”
MPC expects to “defer or delay” some capital expenditures that were expected this year and is reducing operating expenses across its operations. It also has deferred common stock purchases for now.
“Many uncertainties remain with respect to Covid-19, including its resulting economic effects, and we are unable to predict the ultimate economic impacts from Covid-19 and how quickly national economies can recover once the pandemic ultimately subsides,” MPC said.
“However, the adverse impact of the economic effects on MPC has been and will likely continue to be significant. We believe we have proactively addressed many of the known impacts of Covid-19 to the extent possible and will strive to continue to do so, but there can be no guarantee the measures will be fully effective.”
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