Good morning, and thank you for joining our 2018 Analyst Investor Day. I'm Kristina Kazarian, and I lead the investor relations functions for MPC, MPLX, and ANDX. I'd like to begin today and thank our shareholders, our coverage analysts, the rating agencies, and other business partners who have joined us today. I'd also like to thank members of the Marathon team, the corporate officers, and the other senior business leaders who have contributed to making today's event possible. A couple of housekeeping items. There's a Wi-Fi password available on a card in front of you. If you've not already done so, you can access the presentation on our investor relations website. Safety is important to us, and I'd like to point out the safety cards located at each of your seats. The cards include a map and instructions in case of emergency.
The theme for this year's Investor Day is unprecedented opportunities for value creation by leveraging a larger system. Gary Heminger, our Chairman and CEO, will kick off the day with our strategic vision. Over the course of the morning, you'll hear from other key business leaders about the opportunities facing our industry and their specific strategies for capturing value. We'll conclude today with Tim Griffith, our CFO, who will wrap up summarizing what you've heard in the context of our commitment to creating shareholder value. There are no scheduled breaks today. The presentation should end around roughly 11:00 A.M., and then we'll host Q&A afterwards. Lastly, I'd like to direct your attention to our Safe Harbor statement. It's a reminder that we will be making forward-looking statements today in both the presentation and during the question and answer session. Actual results may differ materially from what we expect today.
Factors that could change are included here and, of course, filed with the SEC. With that, it's my great pleasure to introduce Gary Heminger, our CEO, for opening remarks.
Well, thank you, Christina, and good morning to everyone. It's a pleasure to be with you, and I really appreciate you coming out to be with us today. For the opening of our strategic review, I'm confident that you will leave here today with a renewed appreciation of our strategic vision as a very large energy company. As you know, MPC has grown significantly since 2011. We have had many large acquisitions as well as organic projects. Since 2011, we bought the Galveston Bay refinery. We've started up MPLX. We bought the Hess retail assets. We had just finished the Garyville major expansion. As we go into our capital projects today, I'm sure some of you are going to say, "Why are you building another coker in Garyville?" I'll take you back to 2009 when we were building the Garyville refinery.
Many of you asked, "Why are you building this new Garyville refinery?" Then you asked, "Can't you go faster?" As you'll see through our presentation today, you're going to see that we're very disciplined. With the investments that we're talking about, you see we're very disciplined and very strategic in this outlook. Many of you have been followers of MPC, Andeavor, or both for many years. These two great legacies will be very familiar to you. In refining, I just mentioned that we've expanded and strengthened our platform through these strategic acquisitions.
We're going to go into more detail as Ray Brooks today will review some of the major projects, we're really going to dive into how we've been able to really improve on the cost side of the structure of MPC and how we're going to take that into the Andeavor refineries going forward. We have built a very impressive midstream system. I would say a midstream system within the platform of an energy business second to none. We've expanded our retail footprint, both the Speedway, now the acquisition of the new retail within Andeavor, having almost 4,000 units across the Speedway footprint coast to coast.
You will see, as we are able to combine these assets, integrate these assets, bring forward the synergies I'm going to talk about here in a little bit, that we will be truly the largest coast-to-coast energy company in the U.S. with tremendous possibilities for value capture. Before we get into the details, let me introduce you to our management team. I would like our management team to stand, please. Hopefully throughout the breakfast and later today that you'll be able to spend time with our management team. Many will be presenting to you this morning, but in case you want to meet, talk to somebody about refining or talk to somebody about logistics, we have the experts here to share with you. We have already integrated our management team from both San Antonio, from Findlay, and from other parts of the country.
We have integrated, everyone is on target and in doing their new jobs today. Today, we're going to share the vision of our future, that future is one MPC. When Greg and I began developing our vision for the combined company, we knew that we had two powerful legacies. By combining from positions of strength, that's so important here. This wasn't that it was a takeover of one over another. This was combining two companies that were very strong within their own markets. That by being able to combine from these positions of strength, we could truly do something transformative, that's what we have our eyes set on. That was our vision, it continues to be our vision to create the most dynamic and cost-efficient downstream company.
Always leaning in, Greg will talk about this in a little bit, but always leaning in to improving technology across our entire system, not only refining, not only pipeline, but within IT, within Speedway, within retail, technology across the board. Let me back up one second. It would be remiss if I didn't talk about this, but if you look at the performance since 2011, we just chose 2011 because that's when MPC became a separate company. If you look at since 2011, our performance almost mirrors each other. Over a 400% total shareholder return since 2011. We believe this is just the beginning as we bring this transformative business together. Heading into today, I chatted with many of you.
Some of you even helped out by sending an email to Kristina or sending me an email on some points that you wanted to make sure that we covered. We plan on covering all those points and in fact, more with you today. The points of what is our strategic vision, and you'll see that here in just a couple of slides. We're going to go over the benefits of the scale and the integration across our entire platform. Scale is paramount, and we'll talk more about the scale today. We're going to give you a synergy update, something that I know many of you discounted when we first talked about this transaction, about the value of what we thought the synergy was with this combination. We're going to talk about our confidence, and in fact, you'll see that we're raising our synergy target this morning.
Tim is going to spend some good time talking about our capital allocation. Many of you have said, "Can you give us a percentage? Can you talk about free cash flow? What you might share back with us?" We're going to review that with you today. We're going to talk about new segment and reporting information, something that many of you for years, Paul Y. Cheng, I know many times he said, "Gary, can't you give us some more detail on your refining spreads by region?" I know Paul Sankey's always been on me. Hi, Paul. Paul Sankey's always been on me about, "Can't you give us more detail in retail?" We're going to outline that for you today, and we're going to share with you how we're going to give you the information that you've asked.
Greg Goff is going to give you a more in-depth discussion on IMO. Something big in the news yesterday there'll be a little bit of a change in the Alberta government and a reduction, a temporary reduction they call it, in the sale of Canadian crude. We're prepared to talk about that. Rick Hessling has done a lot of analysis, and we're prepared in the Q&A to talk about that. While we think it's very temporary in nature, and I think you recognized yesterday with the volatility in the market, it was very temporary in nature, but we're prepared to discuss that as well today. Turning to our strategic vision. Our strategic vision is built around four pillars, and I have those outlined on this slide. The overarching theme of this strategic vision is that we are built for change.
The new management team that we put in place is already implementing change across the entire company. Underpinning our core values is the drive to be the best operator and the best operator, period. We expect to drive further operational excellence across the entire company, not just refining, but operational excellence. By implementing incremental technology, we believe that we can distance ourselves from the competition in all segments of our business. Of course, we have a very firm commitment to our people, to our safety, and the ecosystem. We have within our industry, definitely a unique business model, and that's the integrated business model, where we believe we can enhance all of the segments of our business by being collaborative and by integrating our systems.
We will deploy our capital through strategic and disciplined investments. You will hear that this morning, always choosing those that have strong project returns or those that coupled with another project within the company can drive incremental returns into that part of the company. Lastly, in order to be able to be built for change, we need to manage a resilient franchise. You can't do that without a robust balance sheet and a balance sheet that really can help power the value of our company going forward. As I said earlier, a big part of that last pillar that Tim's going to review is our capital return both on the dividend side and the share repurchase side. We'll go into that in detail. The first pillar centers around our core values.
These values and these disciplines as centered in the circle here, they are a given in our company. Integrity, health and safety, the ecosystem. I've talked about these with many of you in the past. These are a given and they're not negotiable. This is what we stand for every day that we come to work. We have a long-term strategy in developing the team and developing the people that manage our business. We have a very rigorous talent recognition program, and we work with our management team to develop new talent coming on and to prepare that talent for the future.
In fact, within Marathon, we have a proprietary commercial skills program where we take people from every discipline across our company, whether it's engineering, whether it's financial, whether it's legal, whether it's IT, treasury, and we develop those people to be managers and stewards of businesses beyond just the discipline that they started the company with. I believe that sets us apart within our industry. Responsible corporate leadership, this clearly is our license to operate. As illustrated, MPC has earned 75% of the EPA's ENERGY STAR awards within our industry. 75% of all awards given out by the Department of Energy have come to Marathon refineries. The third slide over, we have 18 VPP sites, the highest award that you can get from OSHA in having safe and operational excellence within your plants.
We have 18 of those that span our refining, our terminals, our pipeline, our major office complexes, and we have a couple more in the hopper that we expect to get approved early in the new year. I illustrate our safety performance on the bottom of the slide and our environmental performance. As you can see, it continues to build and to improve. I urge you to really pay attention, and we have copies out here on a table out front, I urge you, and also urge you to ask your governance teams, to review the two publications on the right, publications on the perspectives on climate-related scenarios and our citizenship report. Many of your governance teams have recognized these two reports as the leading publications on climate-related scenarios within the entire industry.
I urge you to share those with them, because that becomes very important when we go through proxy season, is that we have your governance teams. In fact, our lead director feels that it's so important that he joins us. Molly Benson, who is with us today, our lead director, and myself, we will call and talk to your governance teams to make sure they understand Marathon's perspective on both climate-related scenarios and citizenship, which encompasses all of our major community safety, environmental metrics across the company. When I look at the system we have going forward, this is the second pillar of our strategic vision, is that our integrated business model allows for differentiated results.
As illustrated here, and after two months of operation, it is clear, is that we have additional access to not only feedstocks, but additional access to optimize on how you move those feedstocks, not into just one specific refinery, but maybe you can optimize to another refinery, free up some pipeline space, and be able to capture incremental feedstock value on the front end. Our expanded logistics system not only lowers our acquisition costs, our expanded system, not only pipelines, but you look at the terminals and the marine. You'll see some slides today looking at all the terminals that we market and we price through in the country.
Our logistics system, which I said earlier I think is unprecedented and by far the best logistics system in the business, is going to allow us to have access and increased speed to the market. If you have increased speed, that's going to eventually turn into value capture. We have many additional touch points. Tony and Brian Partee are going to talk about our retail and our direct marketing business, many more touch points in the marketing channel, and we believe it's a significant upsize, significant potential to improve both in the company-owned, company-operated retail stores, as well as the direct stores in this acquisition that we just completed. Further on the integration, what's so important, is that we're going to be connected to all the key supply sources and demand hubs across the country. Scale is important, it's not the only differentiator.
You have to be able to be connected and have to be able to, with the speed to market, to be able to have that competitive advantage to outperform against our competition. This broader integrated system certainly enhances our optimization capabilities. Lastly, I'll say, we view all the points on this slide and the slide just prior as the most attractive investment highlights for MPC today. As I said in my opening remarks, when we first announced our synergy estimate, we built our synergy model from the top down. As we were doing our due diligence on this transaction, we had, as I said, measured from the top down, and we weren't able to get in until we closed the transaction to start building our synergy model from the bottom up.
This clearly is something that we're very excited about because how quickly our team has been able to recognize additional opportunities. Additional opportunities around feedstock supply, additional opportunities to use the pipeline logistics. Excuse me. Will you pass me my water? Either the pipeline logistics that we have or those that we can use from third party who maybe those systems were allocated, and by switching the way we supply crude or take away refined products, we can optimize, get more barrels through at a larger discount. This synergy that we're talking about today, each Don Templin is going to discuss, and Brian Partee and Tony Kenney will discuss the retail, and then Tim will discuss some more on the corporate side. This is something that we have tremendous conviction over.
We're very pleased that so quickly after this transaction, that our team has been able to identify to where we feel we can raise the potential up to $1.4 billion. This estimated run rate has, as we illustrate on the right side of the slide here, is that we believe we can achieve up to $600 million in the first year, building up to potentially $1.4 billion by the end of year three. Many of you had questioned, and in fact, some had discounted this synergy discussion, I just ask you to recall a couple things. Every transaction that we've ever done, whether it's Galveston Bay, whether it was a Hess transaction, and I can go on to more, the synergy numbers we gave you, we delivered, and we outperformed. We don't give you a number unless we know that we can outperform that number.
I just urge you to really study the synergies we're discussing. I'm very pleased, very proud of the team and how they've been able to identify things going forward. The third pillar of our strategic vision is our strategic and disciplined investments and how we can grow. One of the things that is, I think, very important to the company, and many of you have talked to me about this in the past, is that when we first started in 2011, we were considered to be mainly a refining company. We've been able to take and make strategic acquisitions to improve our balance sheet, but to improve our profitability profile by investing in retail and investing in the midstream going forward to where we expect in 2019 to be almost 50% of our EBITDA will come from non-refining segments.
I'm not saying it's not great to have a very strong refining segment. As illustrated today, I know some of our competitors kind of downplay the refining side of the business. We see this. If you're number one of the best in operational excellence, if you're one of the best on the Solomon survey that Ray will get into here in a little bit, we are very proud of our refining segment, and we think this is going to lead us to much better returns and better opportunities going forward. On the right side of the slide, it illustrates our free cash flow yield. We have returned approximately 10%, or had returns on a free cash flow yield basis for approximately 10%, almost twice outpacing the S&P 500 and the energy index peers over the same period.
Tim's going to review how we expect our dividend to continue to grow and our capital return to shareholders. The fourth and final pillar of our vision is our financial strength. Franchise durability, ability to respond to changing market conditions, and through cycle resilience, all require a robust balance sheet. We expect to maintain investment-grade rating with approximately 20% debt to market cap ratio. We have, as you'll see, around $8 billion plus of liquidity. For the parent company, our capital budget for 2019, and we expect it to remain flat into 2020 to be around $2.8 billion. Again, this is at the parent level. We have compelling investments that will drive this EBITDA growth. All of our MLPs will remain self-funded.
Another key ingredient to our vision, which many of you have talked to me about, is share with us what your vision is for how much capital return on a percentage basis or a dollar number that you might return to the shareholders. We expect that equal to or greater than 50% of our discretionary free cash flow will be targeted to return to shareholders. This is something you've asked for, you've clamored for. We've given it to you, and it's something that I think is a very powerful statement. As I said earlier, approximately a 10% increase in our annual dividend is our growth target. This implies approximately a $2.5 billion share repurchase in 2019 or greater. In summary, we believe these two great legacies that we have the premier asset base within the downstream industry.
A very experienced management team, and you'll see new members of our management team today. One person I like to call out that has spoken and presented to you many times, Mike Palmer was a great steward of our crude supply and products distribution business. He's retired effective here in December, and we wish him well. I know many of you always enjoyed visiting with Mike. We have a very strong management team that's come in Rick Hessling and Dave Weikart who've come in to manage things behind. Lastly, we have a very strong balance sheet. A balance sheet that we're going to be very prudent, and we're going to be good stewards of our investors' capital. I've been through the strategic vision. I've illustrated the great opportunities on the side. Stay tuned for the presentations.
Greg is going to present next, but stay tuned for these presentations as I think we have some very exciting things to share with you. Now I'll turn it over to Greg Goff, our Executive Vice Chairman, and he's going to talk about our macro and our strategic position going forward. Greg?
Thanks, Gary. Good morning, everyone. What we thought we would do is, before we get into kind of the details of the different business segments, is provide a little bit of context about how we see the business environment and provide some indications on prices and spreads that kind of underpin our projections as we go forward in that here. I'd probably offer maybe four high-level comments about when we look forward about the business environment. I think, one, we see a fairly constructive global and U.S. economy going forward that'll be supportive. Two, we see good demand for energy, both globally and in the U.S. Three, as a result of that, we see a favorable environment for the refining sector, especially the U.S. refining business, and being able to take advantage of our strong competitive position globally and run at high utilization rates.
Therefore, we see good returns on invested capital over the next few years in the refining space. Finally, the fourth thing is, Gary mentioned this earlier, we're now just months away from the transition to the lower sulfur specifications for marine fuel. We'll see that change starting to happen, and we'd like to share probably some sensitivities about how we think it will have an impact on the company going forward. From a global GDP standpoint, we see GDP pretty healthy at about 3% on a global basis over the next few years, which we believe is extremely important for just overall energy demand. When we look at the demand for distillates and gasoline globally, we see actually pretty strong demand for distillates driven by strong industrial production and the movement of goods around the world.
We see about a 1.7% increase in global distillate demand and a more modest increase in gasoline demand globally, probably somewhere around a half to three quarters of a percent over the next few years. A pretty constructive environment. From a refining capacity standpoint, Doug Terreson and I were talking briefly about this right before we started. Over the next few years, we see modest increases in refining capacity around the world. More importantly, if you look at the chart, we see higher oil demand growth than we do see refining capacity. As a consequence, you'll see higher utilization globally for refining capacity. More importantly, when you come to the United States and you look at the utilization, our view is that we will continue to see high utilization in the refining assets.
We've provided some statistics here. I think if you look back over the last five years, the U.S. refining industry has operated around 90% utilization and actually a little bit higher so far this year. That is pretty strong utilization. Probably everyone's aware that with that type of utilization, the correlation between profitability and utilization is very strong. The outlook is for continued healthy utilization in the refining system. Inventory levels, to kind of provide that foundation for the fundamentals of the business, we prefer to look at them on a day supply basis, especially in the U.S. You can see that basically, distillates and gasoline are actually in a pretty good place on a go-forward basis.
When you look based upon our projections for the economy and for demand and where you see inventory levels, it's pretty well positioned on a go-forward basis for a pretty attractive margin environment. Likewise, you can see distillates, especially globally, are actually relatively low. As we talk more about prices and that, you'll see that our forecast is pretty bullish on distillate prices and distillate crack spreads. Probably the topic of conversation for a lot of people has been on the near-term weakness on gasoline. As we've shown here, as a proxy for, say, gas cracks.
If you look at the last three years on the Gulf Coast compared to what we've experienced as an industry in 2018 so far, you can see that they're weaker over any of the last three years. The projection is for them to continue to be weak going into most of 2019. We attribute that to one, for this year, higher prices for oil that's had an impact on the demand, particularly in the U.S. for gasoline. We see a rebound, but we're actually not coming till the latter part of 2019. On the other hand, if you look at the projections for distillate, we see continued strong distillate demand as well as crack spreads for distillates, and they will be very supportive to refining margins going forward because we still expect high utilization.
There's no question that from an industry standpoint, the U.S. refining industry is the most competitive, most complex, best positioned refining system in the world. The chart on the right shows on a net cash margin basis and the strong position of the U.S., which we believe is a structural position. It's not something in passing. The strong structural competitive position of the U.S. refining business is underpinned by energy costs with lower prices for natural gas. That help from an energy cost standpoint, as well as hydrogen supply, particularly with all the hydrotreating that's required in the business, as well as the advantaged feedstocks in the business.
Particularly when you look at the Gulf Coast of the U.S. and you look at Galveston Bay and Garyville, they are extremely well-positioned in a very competitive market base to capture all of the benefits that we see as we go forward in the market. What I want to do is take a few minutes and share with you our commodity price forecast that when everyone starts to talk about some of the financial performance of the business and that, they're based upon this forecast. In the middle column there is the 2019 business plan. Just to be right up front, our approach is to be fairly conservative because we're planning from an earnings and cash standpoint. You can go back in and you can look at things. Our 2019 business plan has a Brent TI spread of $3.60.
We have a WTI WCS of $22, excuse me. You can see some of the other prices. From a planning standpoint, we take a fairly conservative approach, but we recognize that there's volatility on that. On a longer term, we've tried to provide, as we look out over time, some of that range in both flat prices and the spreads to give you an indication. You can see where our plan has been set for 2019. We believe it's skewed to the upside, that there's more opportunity on the upside as we look forward than the downside. It's important to recognize that our 2019 business plan is really based upon those prices. I think Tim will reiterate those pricing when he shares with you some financial numbers here later in the presentation.
Gary talked a little bit about the different regions of the company. As our indicators for the Gulf Coast, we have our forecast for the 3-2-1 spread on the Gulf Coast using LLS, the Chicago 3-2-1 using WTI in the West Coast, 3-2-1 using ANS. You can look at it and see that they're modestly higher next year than what we've experienced this year, and primarily a function of how we see the diesel crack impacting the crack spread in that. We look out over the environment for the next two or three years and provide these indicators for the three regional crack spreads that have an impact on the company and believe that they're fairly indicative of what we expect to see in the business as we go forward.
I'd like to shift gears and talk a little bit about IMO, it's been the topic of a conversation for a long period of time. The difference is now we're just a few months away from the start. It's really upon us and probably around mid-year that we'll start to see things where people are starting to transition and get systems ready to do that. We're convinced that we'll transition on the beginning of 2020, contrary to some of the comments that were made a little bit earlier this year. We believe they're without foundation and that we will make this change. Basically what you see happening is you see refiners going to max distillate mode.
They're going to maximize distillates. I'm going to share with you in just a minute how well we're positioned to be able to capture the market advantages of that type of economy. The second thing is the ability to upgrade resid in your systems. An important part of driving the profitability because upgrading that resid allows you to make more distillates to meet what we project as higher demand for the lower sulfur marine fuel. The other thing refiners will do is they'll have the flexibility to dampen their gasoline blending a little bit by taking some of the FCC from the cat cracker, the feedstocks, and putting it into the low sulfur fuel oil.
As companies optimize their systems, the most important thing will be the ability to look at your configuration and your refinery complexity, and then your commercial capability to go in and be able to optimize that system and capture the market opportunities. We are prepared today to do that, and we believe we have the capability, as Gary mentioned, through our supply and trading groups and our refining operations to go out and maximize those opportunities. I think he used the term speed to market. This is where it happens in the speed to market to realize those opportunities. We wanted to share with you some of our sensitivities around IMO rather than saying this is what we think is going to happen. We want to share with you some of the sensitivities.
I showed you on the last chart, the impact on the coking turning 3% resid into low sulfur diesel. Three indicators for the company that have an impact on IMO. The first is if you take those three regional crack spreads, and you can see in the note here, we can blend them and get an indication of what does a $1 impact of an improvement in the blended crack spread have on the company. You can see it's in excess of $1.1 billion if crack spreads are $1 a barrel for the entire year. A gigantic impact because of that. You saw what our crack spread forecasts were. The second thing is the heavy crude differential. With a $1 impact in changing on the heavy crude differential, it's about 50% of the impact on the overall crack spreads.
You remember, I shared with you what our WTI WCS spread was in there. You can just get an indication that in an environment as we go into the IMO changes, the impact to the company, and just to restate, based upon our base levels, we see upside impact. We believe it's skewed to provide that upside opportunity. Then the last thing is really around the coke economics. You can see the impact on the company with our operations to upgrade resid to low sulfur diesel of about $40 million for every $1 change in that spread that was provided a little bit earlier. This week, I think we've shared a lot. There's been a lot of discussion about this. There's no question that the U.S. refining business from the change with IMO is the best position in the world.
Less than 3% yield of resid because of the complexity and the sweet crude that's run in a lot of the inland refineries in the country. Overall, the U.S. refining system is well positioned for the transition to IMO. More importantly, the company, as we share on the right, is extremely well positioned by showing you two things. Our resid upgrading capability that you see, which is on the blue line there, and then our ability to create lower sulfur products through desulfurization. You can see almost 1 million barrels a day of desulfur capacity. We've tried to represent that from public information of other companies in the United States. The company is extremely well positioned to go into this change for marine specifications and capture the advantages that the market will give during that time.
Now what I'd like to do is, after providing that context, I'd like to turn it over to Don Templin and Ray Brooks to talk about refining.
Thank you, Greg. For those of you that I don't know, I'm Don Templin. I'm the President of Refining, Marketing and Supply.
I'm Ray Brooks. I'm the Executive Vice President of Refining.
Ray and I will spend the next few minutes sharing some insights about our refining business. I will highlight some of the significant opportunities we have related to crude supply and light product optimization or placement. Ray is going to talk about some of the exciting developments that we have around refining operations. This slide summarizes some of the significant areas of focus that we have for our refining business. First, with supply optionality. We will leverage our broader scale and the vast logistics assets that we have to be able to buy more price advantage crude. We viewed this as a source of exceptional value going into the combination, and we're off to a tremendous start. Operational excellence. We will optimize our existing refining assets and continue to reduce our costs.
As you know, we have a very strong track record around operational excellence, which gives us great confidence in our ability to deliver. Investing to enhance margins. We will continue our disciplined high return investments in resid upgrading capacity and the ability to produce more diesel. Finally, we'll continue investing in domestic light product supply placement flexibility, as well as increasing our export capacity. As Gary mentioned, we're really excited about our increased scale. Not only do we have more refining capacity than our peers, but we have the best diversification. We have significant presence and balance in PADD II, III, and V, and we have really good exposure also in PADD IV. This gives us great confidence about our ability to generate meaningful cash flow through all of the business cycles.
At the time that we announced the combination, we knew that there was significant overlap in the way that we sourced crude. We were especially excited about our incremental exposure to Canadian, Bakken, and Permian crudes. Three basins that we see having a lot of potential and cost advantage for years to come. As a result of that overlap and our access to midstream assets or logistics assets, we contemplated about approximately $100 million of synergy opportunity related to crude supply. Just two months into it appears that we were way too conservative. The opportunity set is worth hundreds of millions of dollars, and we are realizing it more quickly than we anticipated. With respect to Canadian crude, we buy over 500,000 barrels a day of Canadian crude. This gives us really a significant opportunity to maximize our Midwest and our Minnesota refineries.
We have refining capacity of over 850,000 barrels a day in the Midwest and in Minnesota. About two-thirds of our purchases of Canadian crude are heavy, and about one-third of that is light or synthetic. We also have the ability to move that crude to our Galveston Bay and Garyville refineries, and they have a capacity of nearly 1.2 million barrels a day. We see some real great flexibility and optionality here. The Bakken tends to get maybe a little less attention than some of the other basins, but for us, it provides considerable upside. Our strategy in the Bakken is to go all the way to the wellhead and purchase as much crude as we can there. We'll then use our gathering assets and our space on long-haul pipelines to supply our Midwest refineries.
We're also going to utilize this basin, the growing basin and the growing resource base there, to continue to supply our Mandan and our Anacortes refineries. Going all the way to the wellhead is also an important part of our significant and growing gathering assets in that basin. We also have ownership interests in the Gray Oak Pipeline and the PGC Pipeline, which should provide us flexibility and optimization opportunities. Think about it. The Galveston Bay refinery requires 600,000 barrels a day of crude. We have the ability to acquire or purchase significant volumes of crude in the most prolific basin and then use our gathering assets and our long-haul pipelines to deliver it to that refinery. We believe this will provide a significant competitive advantage.
Thanks, Don. At Marathon, everything starts with our commitment to safety and environmental excellence. We protect our employees, we protect our contract partners, and we protect the communities in which we operate. Our personal and process safety performance has historically been better than the industry average, and we are keenly focused on being a top decile performer in this space. We are especially proud of our environmental performance, where we have reduced environmental incidents by over 80% in just the past five years. As Gary Heminger said to lead things off, safety and environmental excellence is a core value, is non-negotiable, and is our license to operate. As I pivot to the financial part of this discussion, there are three takeaways that I'd like to leave with you today.
The first takeaway is we strive to be a low-cost operator in the refining space, and our measuring stick for this is the Solomon cash operating expenses. As you can see from this graph, MPC's 2016 data point, that we were better than our peer group, and this amount totaled up to $240 million a year cash operating advantage relative to our peer group. You can see we've also put a proxy for 2018 based on our performance as we close out the year, and we have made further improvements in this regard. If we look at the Andeavor 2016 data point, smaller refining systems, so up the scale a little bit, there was $120 million a year cost opportunity relative to the Solomon peer group.
Narrowing this gap on operating expenses will be a key focus for us going forward and will be a key part of our synergy capture for the refining organization. We will do things like emphasize turnaround execution and cost control, energy efficiency, and reliability improvements to narrow this gap. This isn't something that I'm just up here dreaming, hoping will happen, but we've delivered this in the past, as you can see from the data points from the Galveston Bay refinery. Since we've owned this facility in 2013, we've participated in the 2014, 2016, and then we've also put a proxy in there, an estimation for 2019. You can see we have taken this refinery from a very poor performing fourth quartile refinery to one that we believe will be on the first, second quartile breakpoint. This improvement on a cash basis is worth $350 million a year.
The second takeaway is that we want to maximize the profitability of our existing toolkit. What I mean by this is pursuing low-cost, no-cost opportunities to squeeze out a little bit more charge rate, improve fractionation in our system, improve our catalyst performance, just to gain a little bit of opportunity one success at a time. From 2013 to 2018, you can see from the bars, these type of efforts have increased our crude capacity by 110,000 barrels a day, our conversion capacity by 134,000 barrels a day, and our hydrotreating capacity by 88,000 barrels a day. More importantly, when you look at the pie chart, is what comes out the back end. 64% of the incremental production is distillate, with only 3% coming out of gasoline. We have targeted for the products that mean the most to us.
This optimization has netted MPC over $300 million a year of incremental EBITDA. Continuing this focus across 16 refineries, again, will be a major part of our refining synergy capture. This, in my opinion, will be the largest component in refining, going forward to capture those synergies with the Andeavor-Marathon combination. I'm confident on this because we haven't waited till now to get going on this. In the first two months, we've gone to all 10 of our new refining partners, done technical deep dives, looked for constraints, and started to put together the playbook that we'll execute over the next couple of years. My third takeaway is we want to grow refining through a disciplined and strategic focus on capital investments.
This waterfall bar chart shows a build-up in EBITDA over the next four years for just nine projects in our growth portfolio, and these nine projects total $1.1 billion of incremental EBITDA on $2.8 billion of forward CapEx. These investments are strategic in that they continue with our conviction for resid upgrading and diesel production. They are disciplined that when combined with the rest of our capital spend in refining our maintenance regulatory capital, our total capital spend is relatively flat. As you can see, the average return of these projects is over 30% easily, going over our hurdle rate of 20%. What I'd like to do is I'd like to provide a little bit more color on four of these projects, in particular, starting with the Garyville third coker project. I want to start off by saying this is not an IMO-driven project.
We actually have IMO-driven projects at Garyville on the coker with replacing coke drums that we're doing right now, and will have ahead of the 2020 regulation. This project is looking at increasing the coking capacity at Garyville by an additional 50%. At this point, what we've done, about a year ago, we started conceptual engineering, and we've now progressed into definition engineering. We have a really good look at the CapEx, and we expect to bring this project in just under $800 million. We can do that because we've already at the Garyville refinery, we have sulfur treating capacity and we have hydro treating capacity that's required in projects like this. This project really just focuses on the coker. The other thing is we expect to bring this project in in the fourth quarter of 2021, which is ahead of other recently announced projects.
I want to emphasize again that while this isn't an IMO project, we really feel it's a good project. The IMO bump that Greg talked about earlier happens in 2020, 2021, and then 2022 and onward levels out, and that's the economic basis that we're using for this project. If IMO is extended, if IMO is delayed, if IMO is a bigger impact than we're forecasting today, we believe this project has significant upside. I'd like to turn to our Texas refinery, the Galveston Bay refinery, and I'd like to talk about a project that truly defines a discipline program, and that's our STAR program. STAR stands for South Texas Asset Repositioning Program.
This is a project that you've heard about many times because it's been around for a while, and it is a disciplined approach to CapEx because we took a very staged and methodical progress to this project. The first phase of STAR was actually implemented in 2016 with the repositioning, repurposing, and expansion of our resid deasphalting unit. This was a big winner for Marathon, with a net EBITDA contribution of $175 million on only $65 million CapEx. We are now moving forward with the rest of STAR, which further increases resid processing, sour crude processing, and distillate production. We put a lot of pictures in our presentation, but I want you to actually look at this one for a minute. This is a picture of the resid hydro treating unit at the hydrocracking unit at the Galveston Bay refinery.
The reason I want you to look at this is, one, because it's an integral part of the STAR program, and two, because you won't go to any other refinery in the U.S. and see this. This nine-reactor high-pressure system is pretty much a one of a kind. I also want to stop a minute and talk about resid hydrocracking versus coking, because with IMO, we talk a lot about coking, but resid hydrocracking is an alternative to processing resid. Where you put one barrel in a coker and you get eight tenths of a barrel out, you put a barrel in a hydrocracker and you get 1.1 barrel out. It's a big money maker for us, and we're happy to have it part of the STAR program.
I also want to mention that when I talked earlier about maximizing the profitability of the existing toolkit, this unit, when we bought the Galveston Bay refinery in 2013, on a good day, ran about 50,000 barrels a day of resid through the unit, and we fought some reliability challenges. Today, as we speak, six years later, if we're not running 70,000 barrels a day through this unit, we're disappointed. When I talked about that conversion capacity creep, this unit was a big part of it, and it's a big part with a high margin. Going forward with the rest of STAR will further increase the capacity of this unit, and we'll implement these programs in staged opportunities to coincide with turnarounds between 2020 and 2022.
When the program completes in 2022, we will have a total new generation EBITDA of $525 million, including the $175 million already achieved on total program costs of $1.5 billion. I'd like to turn from our largest refinery to our smallest refinery in Dickinson, North Dakota. The Dickinson refinery today is a 17,000 barrel a day simple refinery, a crude unit and a distillate hydrotreater. What we are doing is we are converting this into a 12,000 barrel a day renewable diesel unit. This diesel will then be used to supply the California market. This project is unlike most refining project. Most refining projects, we look at spreads to do our economics. That's not the case with this project.
This is totally driven by regulatory drivers, specifically the generation of advanced biofuel RINs, and then secondly, and more importantly, the generation of carbon intensity credits to comply with the California Low Carbon Fuel Standard. We have an aggressive timeline to complete this project by the fourth quarter of 2020. It's a $455 million CapEx and has a net EBITDA contribution from those regulatory drivers of $180 million a year. The last project I'd like to talk about is our Los Angeles Refinery Integration and Compliance Project, called LAIC for short. This project integrates our two Los Angeles refineries into one single complex, exactly like we've done previously at the Galveston Bay Refinery. Most of the $510 million CapEx has already been spent. We have $70 million left to spend to complete this project in early 2020.
I would like, though, to draw some comparisons with this project in Los Angeles with the Galveston Bay Refinery. In 2013, both Marathon and Andeavor bought refineries from BP. Interestingly, both companies took a very similar approach to these refineries strategically. Both built pipeline connectivity between the facilities. At Galveston Bay, we were able to go over the road. At Los Angeles, we needed to go under the road. At both sites, we sought to rationalize processing units. Coincidentally, this resulted in idling cat cracking units at both Galveston Bay and Los Angeles, and that did two things. One, it reduced energy emissions, freed up energy emission credits, and then Excuse me. Yeah. Reduced environmental emissions, so it freed up credits. And then the second thing, it avoided costly expenditures on aging equipment.
The third thing that was similar between both sites is the emphasis toward hydrocracking away from cat cracking, which I think everybody knows is an emphasis of distillate production over gasoline production. At the end of the day, both the Los Angeles Refinery and the Galveston Bay Refinery were big winners for both Marathon and Andeavor, and I will tell you going forward, they're both big part of the refining organization. With that, back to you, Don.
Thanks, Ray. We continue to see volatility in the light products markets. While it's hard to predict where the best light product placement opportunities will be, we do know that the most successful companies have scale, they have logistics assets, and they have export capabilities. MPC has unrivaled scale. MPC has unrivaled connectivity. MPC has unrivaled export optionality. With approximately 50 billion gallons of light product or products to sell every day, even small Oh, I'm sorry, in a year. Even small improvements in realizations have a meaningful difference. For example, every one-tenth of a penny improvement in our light product realizations yields $50 million of value. We believe it's important to have product placement options. It allows us to find the most attractive markets, but it also allows us to run our refining complexes at high utilization rates.
In the Midwest, we're pursuing opportunities to move product further east, first by rail and then ultimately by pipeline. We're also investing in barge and dock assets to allow us to move refined product to the Tennessee markets and the U.S. Gulf Coast. In the Gulf Coast, exports provide us with an opportunity to realize or to access the markets that have the best net backs. It also allows us to maximize our refinery utilization. With that in mind, we're investing in incremental tankage and dock capacity at Galveston Bay, and at the Garyville Refinery, the recently acquired Mount Airy Terminal gives us incremental optionality and flexibility around refined products or light products, including around exports. We view Mexico as a very important part of our export strategy, and we're pursuing a multi-pronged approach in that country.
In Eastern Mexico, we will continue to supply refined product from our Gulf Coast refineries. Just to give you some perspective, about one-third of our total exports from the Gulf Coast currently go to Mexico. In Northwest Mexico, we're investing in infrastructure, including a light product terminal in Rosarito and lease capacity in Sinaloa. In Central Mexico, we'll supply light product via rail or truck. We've also branded over 100 ARCO stations to facilitate the placement of light product to the markets that need it the most. We're just two months into our strategic combination, and as Gary talked about earlier, we are really excited about the synergy opportunity and what we're achieving right now. I thought it'd be helpful maybe to share some early successes as it relates to the refining and supply side to give you some perspective of why we're so excited.
Through some great work by our crude supply team, we've been able to leverage our scale to optimize our access to Canadian crudes. This drove about $20 million of net synergy value in each of October and November. We've also optimized our foreign spot purchases, delivering about $2 million of incremental synergy for those two months as well. On the refining side of the business, Ray talked about many of the things that we're doing and his confidence in delivering synergies. This slide gives you an example of two such synergies that contribute $45 million. We utilized turnaround specialists and our broader access to contractors to support the recently completed Martinez and St. Paul Park turnarounds. That allowed us to complete those turnarounds ahead of schedule and under budget, delivering $22 million of value. Some of you will think that that's a one-off. We don't believe that.
Given the size of our refining base, given the magnitude of the turnarounds that we'll undertake on an annual basis, we believe that this is repeatable. We've also identified the opportunity to utilize Tier 2 sulfur credits across our refining system, which we will expect to deliver about $23 million of value in 2019. You know, prior to the closing, and Gary talked about this in his comments as well, there were limitations on our ability to share information, particularly around competitive information. In the two months since the closing, our teams have been accessing this new information. They've been really excited about accessing this new information to generate incremental synergy ideas and opportunities. We've identified hundreds of ideas, some small and some much bigger. As a result, we're raising our run rate synergy estimate for the refining and marketing segment by up to 40% to $665 million.
The successes we've had to date, I talked about those successes. The successes we've had to date give us incredible confidence about our ability to deliver that in year one and in year three. We have $665 million of synergy opportunity in refining and marketing. Ray just talked about nine projects that he expects will deliver 1.1 or in excess of $1.1 billion of run rate EBITDA. Add that $665 million of synergy, that over $1.1 billion of incremental annual EBITDA, and you're approaching $2 billion of annual value that we're going to deliver from the refining segment. That's what gives Ray and I such excitement about what's happening in the refining business. Greg talked a little bit about the business outlook. Ray and I have talked about refining.
Now what we'd like to do is go down the value chain and talk about midstream. I'll turn it over to Mike Hennigan, President of MPLX, and Don Sorensen, President of ANDX.
Good morning, everyone. I'm Mike Hennigan, President of MPLX.
Good morning. I'm Don Sorensen, President of ANDX.
This morning, Don and I are going to be talking to you about the midstream segment. One of our goals is to capture value across the entire value chain. You're going to see us talking about getting more from existing assets, in addition to our strong base businesses. We're also going to get involved a little bit more in long-haul pipelines as well as export activity. I usually say exports three times, exports, exports, because that's where the hydrocarbon chain has gone to. We're also concentrating in the premier basins, Marcellus, Permian, STACK, and the Bakken. We also plan to leverage the relationship with MPC. The MLPs try to provide value to the sponsor from synergy values, as well as bring in third-party money into the enterprise. Lastly, we'll talk a little bit about financial priorities.
At the end of the session, we'll talk about the numbers. Right now our goal is to grow DCF per unit, have coverage sustaining a self-funding organic capital program. Investment-grade credit profile is always important to us. Ultimately, we want to get mid-teens returns on the capital we deploy in this business. If you look to the slide at the table now, we're showing you kind of a macro view of the U.S. production growth in the U.S. We took a 10-year look, and what this chart should show you is. There's a lot of opportunity in the midstream space for capital investment in G&P, in pipelines, in fractionation, and export facilities. We're going to talk about all that today. As far as crude, we're showing it up 50% over the 10-year horizon, up about five million barrels a day across that timeframe.
Natural gas, we're showing going out to about 100 BCF market by 2025. We decided to be on the conservative side for this presentation. A lot of consultants have it from 100 all the way up to 120 BCF by 2025. It's about a 25 BCF improvement from where we are, 33% gain over the 10 years. NGLs are also going to grow. You can see on the chart 69%, which is about three million barrels a day. The other important takeaway from the chart, as I mentioned, is exports. Essentially all the incremental crude production is going to export, four to five million barrels a day of crude will export. LNG will become an important part of the natural gas story, with 10 to 15 BCF of LNG going to export and about three million barrels a day of NGLs will also export.
Turn it over to Don.
All right. Thanks, Mike. I'd like to talk with you a moment a bit more about the integrated value chain that Gary introduced earlier. Specifically, what I would like to talk about is how Marathon's diversified midstream business has the opportunity to touch the molecule and generate value throughout the value chain. Additionally, our inbound and outbound logistics assets are very highly integrated with our refining, marketing, and logistics assets. Lastly, at each of those touchpoints throughout the value chain, how our midstream business has the opportunity to generate third-party income.
Going back and starting at the wellhead, Don Templin mentioned to you how that is core to a lot of the strategy we're doing, that provides the opportunity for us to generate third-party revenue through crude and gas gathering fees, as well as serves as the origin point for feedstocks that we're sourcing into our refining and processing facilities. From there, when you look at the connectivity of our gathering systems with our intermediate and long-haul pipelines, we have that ability to provide reliable intake to our refineries and our processing facilities, as well as the ability to deliver feedstocks to market hubs for third-party processing and export.
Turning to the exit of our refineries and our processing facilities, our outbound logistics assets, consisting of pipelines, terminals, marine, rail, and trucking transportation, provide ratable offtake for our refineries and our processing facilities, also provide another opportunity for us to generate third-party revenue through pipeline tariffs and terminalling fees. Our outbound logistics business also provides secure, dependable, and cost-effective supply of transportation fuels to our retail and marketing outlets, further generating value throughout the value chain. Back to you, Mike.
Thanks, Don. Marathon's midstream efforts have concentrated a lot in the Permian Basin, and you're going to see over the next five slides a list of organic projects that are either accomplished or in development that have the strategic rationale to bring third-party money into the enterprise and/or create a synergy with MPC. You're going to see projects in gathering and processing on both crude and natural gas. On long-haul pipes, we're going to talk crude, natural gas, and NGLs. We're going to talk about fractionation development south of Houston, near Texas City, and we're going to talk about export terminals, five locations along the Gulf Coast on export terminals. Don?
Great. Thanks, Mike. I'd like to talk to you a little bit about the Conan Gathering System. Very, very excited about this project. We've been working on this for a little over a year, and it provides an incredible anchor point for growth of crude gathering in the Permian Basin for us. Additionally, it also serves as a core feeder of crude into our long-haul pipelines that are under development, including our Regal pipeline system, our Gray Oak pipeline system, and the PGC. The other opportunity that's provided by this is it enables us to provide cost and quality advantage. By quality, we're typically thinking about how we manage gravity and sulfur into our El Paso refinery, as well as in the future, it will provide us that opportunity in our Gulf Coast refineries.
The Conan system is currently capable of 250,000 barrels a day and about a million barrels worth of storage, but it's also readily expandable up to 500,000 barrels a day. Where we're at with that project currently is we expect to finish the initial construction by year-end. At the end of the third quarter, we were at about 90,000 barrels a day of gathering capacity on that system. By the end of the year, we expect to be well over 50% above that number and are very pleased with the progress to date. Additionally, when we talk about some of the interconnects, we expect to complete an interconnect from our Conan system to our Regal pipeline system, which gives us takeaway capacity into Midland. We expect to complete that project in the first quarter of 2019.
Additionally, we expect to have the connectivity into the Gray Oak pipeline by the end of 2019 and the PGC pipeline in 2020. Back to you, Mike.
Thanks, Don. On the natural gas side, we're concentrating in the Delaware Basin, and we're developing a super system very similar to what we have up in the Northeast. We have two plants running currently, Argo and Hidalgo. We have two plants in construction, Tornado, which will be on third quarter of 2019, and Apollo, which will be on in the first half of 2020, as well as Pregnas, which is very close to FID. These facilities provide both gas and liquids for a couple projects that we have in development that are called Whistler Pipeline on the gas side and BANGL Pipeline on the NGL side, and we'll get into those in a second. Before we get into those, on the crude side, we have two projects.
One is the Gray Oak Pipeline, which is a JV with Diamondback and Phillips, which originates barrels up in the Delaware Basin and brings them down to Corpus Christi for export. We have the PGC Pipeline, which is a joint venture with Energy Transfer, Magellan, and Delek, in which we're sourcing barrels in the Delaware Basin and bringing those down to the Houston markets, New Orleans markets, and ultimately to our Galveston Bay facility in Galveston Bay, Texas City. One other project that we have going, we've initiated discussions with an alternative project, the Exxon Plains Lotus project, is following a similar route, we're having exploratory discussions on whether we combine the PGC Pipeline with the Exxon Pipeline project in a joint interest effort for capital efficiencies.
We'll go with parallel paths, where we continue to move on PGC as a standalone, as well as continue these discussions on a joint interest project. On the gas side, Whistler Pipeline is our natural gas pipeline project that we're developing from Waha down to Agua Dulce, and then across over to the industrial markets in Texas City, and ultimately to the Galveston Bay facility. Again, same strategic rationale. We are looking to bring third-party money into the enterprise, but also connect to the Galveston Bay facility for natural gas. Galveston Bay itself is about 200 million standard cube feet per day of demand, so it's a pretty significant part of the 2 BCF Pipeline project. We're very anxious about this project and looking to go into open season in early 2019 for completion by the end of 2020. Our long-haul NGL pipeline is called BANGL.
Stands for Bellevue Alternative for NGLs. This is a joint venture with ourselves, WhiteWater Midstream, and several other partners. We're looking to bring NGLs down near Texas City, where we would build two 150,000 barrels a fractionators near Texas City, and then ultimately bring those NGLs to an export terminal in Texas City with a joint venture with Oiltanking. That's where the propane and some other NGLs would export. At the same time, we have local demand, and then most importantly, a synergy again with the GBR facility for both butanes as well as natural gasolines. Again, this project is also hitting that strategic dynamic of third-party revenues into the enterprise and a synergy with Galveston Bay. Lastly, I'm going to talk about five export terminals. I mentioned one just briefly about Texas City JV with Oiltanking for NGLs, but we also have four other locations.
In Mount Airy, near our Garyville refinery, we acquired a terminal that currently has 4 million barrels of third-party activity in that terminal. Again, the same theme. Hopefully, you're getting the takeaway of third-party money coming into the enterprise, and it sits right next to our Garyville refinery, so a synergy with our facility right there. Next to that is our LOOP facility. LOOP is a first mover and the only U.S. port that is capable of loading VLCCs. The synergy here is we've developed a project that is in open season today called Swordfish Pipeline, which is where we're working with Princeton Midstream to reverse a line from St. James down to Clovelly so that we can ultimately go out to export at LOOP.
Export has amazing capacity for vessel unloading in the past, which will move to loading as we progress into a new regime of crude exporting. In addition to that, one other thing I want to mention on LOOP is another project that we continue to work on is the reversal of Capline. We ran a non-binding open season, we've developed more and more interest in the pipeline, we're hopefully going to get to a binding open season in the not-too-near future. We continue to work with the other owners on structure, that continues to progress.
Down in South Texas, we also have the MPLX Texas tank farm, where we have crude, about 1 million barrels of crude tankage there, we're going to continue to develop that facility as well. Further south, down in Corpus Christi, we have the South Texas Gateway project, where Marathon has an interest in that facility for exports out of Corpus Christi. Don?
Great. Thanks, Mike. I'd like to swing you up to the Bakken Basin now and share with you a little bit about our full-service midstream business up there, where we have the opportunity to do crude gathering, gas gathering, gas processing, and fractionation. Don Templin mentioned to you how important the Bakken is to us as far as sourcing feedstock into our refineries.
When you look at the extensive gathering system we have in the Bakken, coupled with our ability to access our High Plains Pipeline system, as well as into DAPL and our Fryburg rail terminal, it gives us that opportunity to provide cost-advantaged feedstock to not only our Mandan refinery in North Dakota, but also our other Mid-Continent refineries and our Anacortes refinery via rail export from Fryburg. Additionally, what I'd like to share with you a little bit is, as we look to further the value chain integration in the Bakken, we have an incredible opportunity for a project that we call the NGL Hub Project. What this project does is provides an alternative NGL takeaway solution for the Bakken. It also allowed us to increase the utilization of several assets that we had in the system by incorporating it in with this project.
What we were able to do is take a portion of our Bakken link pipeline, repurpose it from crude to NGL service, increase the utilization overall for that system, as well as not only fill out our Belfield gas plant, but also build an additional 15,000-barrel-a-day fractionation train there. Then going down to our Fryburg rail terminal, while we still preserve the ability to export crude from that terminal, we were able to go in and build an NGL loading rack, which gives us the opportunity to export purity grade NGL products from a unit train out of that facility. Great opportunity for us to utilize existing assets, create additional value, and bring third-party revenue into the system. Where we're at with that project to date is we've put the pipeline and the rail facility in service. Actually, just as recently as the last week.
We expect to put the fractionation train in service in the first quarter of 2019. The total investment for the NGL Hub Project is about $150 million. Of that amount, we've probably spent 90% of it to date and are very near completion. With that, Mike, back to you.
Thanks, Don. I want to take a moment to talk about the largest natural gas basin in the U.S., and that's the Marcellus Utica. Just to set it up again, we have executed or in the process of executing eight processing plants across MPLX's footprint. Six of those processing plants are up in the Marcellus Utica, as growth continues to be very robust. Three of those plants are coming on in the fourth quarter, as well as 100,000 barrels a day of fractionation capacity. We continue to invest money and deploy capital into the Marcellus because we continue to believe in the growth up there. To show you some forecasted numbers up on the screen, you can see our gathered process and fractionated volumes. We're showing 46% in the gathered volumes, 35% in the processed volumes, and 38% in growth out to 2020 in fractionated volumes.
We remain very bullish on this area of natural gas development. People often talk about the Permian and associated gas. I like to say that the Marcellus is semi-associated gas because the wet area itself, revenues from the liquids itself are starting to approach about 50% of the revenues in the gas. It also has the lowest break-even. We remain very bullish on this area of natural gas development. Don?
Just to provide you a little bit of a recap on what we expect for financial metrics in the coming year. ANDX, we expect to spend $600 million annually in growth capital for both 2019 and 2020. For EBITDA, we are expecting an EBITDA of $1.4 billion in 2019 and $1.6 billion in 2020. As far as distributable cash flow, we expect to see $1.1 billion of distributable cash flow in 2019 and $1.2 billion in 2020. As we look forward for distributions for 2019, ANDX anticipates to maintain our current distributions pending the ongoing business review that we're doing. Mike?
On the MPLX side, even though a lot of people haven't gotten excited about the equity markets lately, we're pretty excited about the financial metrics that we're sharing with you today. On an EBITDA basis, on a DCF basis, on a DCF per unit basis, we're targeting to grow 10%-15% over the next couple of years, as you can see on this slide. DCF per unit, doing the math for you is $3.81 in 2019 and $4.36 in 2020. In addition to that, we're guiding that we're going to increase distribution growth DPU per unit by $0.01 per unit per quarter, and we're going to continue that pending the outcome of the MLP process that's ongoing at this point. As far as coverage, we believe in maintaining coverage at a level that supports our capital program.
Right today, we're running about a 1.4 times coverage level to support our capital program, which in 2018 is about $2.2 billion. We're expecting to spend roughly about the same number in 2019 of about $2.2 billion. After that, we're thinking in the $1.5 billion-$2 billion range, provided that we get significant returns on that capital that we deploy. With 10%-15% DCF per unit growth and 6% DPU per unit growth, we have excess financial flexibility that will give us the opportunity to either add more to coverage, increase distribution if the market is rewarding it. If the market is not rewarding it, possibly move into a buyback scenario. Having that flexibility is where we want to be for MPLX.
Lastly, I want to say, if you look at the big circle, what's most important for Don's business and our business is that we're driving distributions to MPC. For 2019, the MLPs will be distributing $1.9 billion back to MPC as part of the enterprise cash flow. With that, we're going to turn it over to marketing and retail for Brian and Tony to come up. Thanks.
Good morning. I'm Tony Kenney, President of Speedway.
Good morning. My name is Brian Partee, and I'm the Senior Vice President of Marketing.
Before I get started, I want you to take a look at this slide. These are three great brands. I couldn't be more excited as I look to the future of our marketing and retail business and the opportunity that we have to take this tremendous portfolio of brands coast to coast and the opportunities that we'll have to exploit. Hopefully, Brian and I, with our comments this morning, will give you a better sense of the scale and the scope, the opportunities, and the superior value that we believe we will create in our retail and marketing activities. As Gary stated in his comments, one of MPC's strategic priorities is to remain committed to a fully integrated downstream, from refining through transportation and logistics, to marketing and retail. It's not only that vertical integration that I want to talk about.
I want to tell you about the horizontal integration between the retail components themselves. We essentially are integrated across all channels of trade, from discretionary wholesale to company-owned and operated retail. It's this commitment to the level of integration that really is an advantage for MPC, unlike many of our peers, where it gives us tremendous flexibility to be able to optimize placing billions of gallons of product into the market every year. Our strong position in company retail presents many opportunities to continue to grow organically with mid-teen rate of return type projects, as well as the national footprint gives us an opportunity to look at acquisition opportunities as they present themselves. Our competitive strength is our focus and our ability to adapt to the fast-paced changing consumer as a result of innovation in technology.
Our focus on investing in technology will allow us to continue to grow market share both outside at the fuel island and inside our convenience stores. Let me turn it over to Brian now to talk a little bit about our marketing platforms and our channels of trade.
Thanks, Tony. Looking across the nation, we now have a combined retail and marketing footprint that spans 42 states, including Alaska in support of Razor refining operations up in Kenai. Additionally, Don mentioned earlier our emerging presence in Mexico. Importantly, we have a meaningful presence in several key high demand centers across the U.S., notably New York, Atlanta, Chicago, L.A., and San Francisco. Reflected here on this map via the dark blue circles are over 300 third party and proprietary terminals where our marketing team markets every day of the year, 24 hours a day. This expansive geography internal network provides our marketing team with meaningful scale as evidenced by the over 12,000 locations and 16 billion gallons per year when looking across our retail segment and brand marketing channel. The gasoline supply to these locations serves as the foundation for our assured product placement strategy.
Under this strategy, we place roughly 70% of our gasoline production automatically into the market each day. This automatic placement is a key enabler to the overall optimization of our integrated supply and distribution network. Tony and I will provide a fulsome overview of our branding strategy in the next few slides. However, I had to make mention here early of our pride in bringing the ARCO brand into our brand division to have a dual threat proprietary brand offering for our branded channel. To that end, right after closing, right out of the gate, we saw strong demand for the ARCO brand east of the Mississippi. In addition, strong demand and interest in the Marathon brand out west.
To that end, I'm happy to report we're currently in the process of negotiating multiple new incremental brand supply agreements where both brands are involved, and we're leveraging the strengths of both to better position ourselves optimally in that space. Moving on, let's take a deeper look at the channels we operate in today, just as an orientation in terms of the segments. First, let's look at the retail channel in the top left. In the retail channel, we have two defined segments. Of course, we've got the retail channel embedded within the retail segment. In this channel, we have traditional company operated locations. In addition, we've welcomed in the direct dealer channel. This is a legacy Andeavor channel that we're happy to participate and see opportunity for upside in. In the direct dealer channel, we have locations that are operated by third party owners or dealers.
We have a direct relationship with that dealer one to one, and we supply fuel directly to the site under a long-term supply agreement. Beyond fuel supply, we also have a back court relationship or franchise relationship to help with the store operations and related merchandise marketing efforts. We believe meaningful opportunities exist to further leverage Speedway's technology platform, significant buying power, and overall retail best practice to not only aid the existing dealers, but to further grow this channel as we look to the future. Moving to the R&M segment, you can see the two distinctive channels here as well. We've got our branded division and our wholesale division. In our branded division, we have roughly 6,900 locations across the U.S. In this channel, we have jobbers or distributors who have a direct one to one relationship with individual dealers. Our relationship, as articulated here, starts and ends at the terminal level.
In the wholesale channel, we sell to our wholesale customers with really no brand affiliation or related long-term supply agreement. This broad multi-channel platform provides MPC with unrivaled flexibility to optimize not only production, but also the distribution of fuel through our fully integrated supply and distribution network. Next, I want to take a deeper dive into the wholesale channel. The wholesale channel is a key enabler in this optimization process. The wholesale channel represents almost 17 billion gallons of year sales. As you see, split here between jet fuel, diesel, and gasoline. In this channel, we have an extensive network of over 2,000 customers spanning coast to coast. Customer focus generally is around independent convenience stores, truck stop operators, grocers, trucking companies, railroads, airline, and government entities.
We have begun to consolidate and synergize these separate legacy MPC and Andeavor relationships with several dual customers into one more relevant, larger scaled relationship. Given our new coast-to-coast platform, we are finding innovative ways to drive value mutually in a broader, more deep relationship with these customers. Moving to the bottom of the slide, this is an important point I want to really drive home around integration and value. On the gray part at the bottom of the slide, you can see the split between how we transact each day with our wholesale class of trade. It's roughly a two-thirds, one-third split between discretionary and contract sales. On the contract basis, as you'd expect, predetermined price, quantity, and term. Pretty straightforward. It's a promise to perform on our part. On the discretionary basis, this is where we post a new price every day.
No commitment to sell on our part, no commitment to buy on our customer's part. It might surprise you to learn that we actually post over 3,000 independent wholesale prices each and every business day. The way to think about this discretionary component, I mentioned earlier about the foundation and our assured product placement strategy. This discretionary piece is the other side of that. It allows us to perform at a very high level relative to our contract performance, again, making good on that promise to our customer, and also take advantage of market disruptions and arbitrage and shifts, as the market is very dynamic as you'd reasonably expect given the nature of our business. Our broad geographic diversity and channel participation provides our marketing supply team with absolutely unrivaled market insights.
That's what drives our ability to perform at an extraordinary high level as we think about integration and optimization. As a marketing team, we're the tip of the spear. We're out there with the customer in all these markets each and every day. It allows us to optimize all the way back to the refinery and even beyond back to the crude acquisition process. Moving on, I'm going to take a quick stop to talk a little bit about fuel branding. Looking at the bottom left corner of this slide, you will see our three core proprietary brands. Speedway representing the legacy company-operated retail locations, and Marathon and ARCO, as I previously mentioned, our proud suite of brand marketing platform. Also highlighted here are core licensed brands.
Under these agreements, we have our barrels moving through our system where the fuel is advertised at the terminal level and we pay a fee to the licensing partner for the right to market under their brands. In total, we have roughly 1,500 locations with fuel marketed under these licensed brands spanning multiple channels. We are currently in the process of collaborating with our core licensed partners to define the opportunity set moving forward. Our focus here is a path to drive incremental value to all stakeholders in this process, MPC, our licensed partners, and ultimately our customers. Our team is extraordinarily excited about the optionality and flexibility this new multi-branded platform provides to us. Tools that we've never had before. We feel this platform provides us with a key competitive advantage as we work to grow our presence not only across the U.S. but also into Mexico.
With that, I'll turn it back over to Tony to make some comments around the retail side of things.
Thanks, Brian. Let me give you a general idea of the locations and the branding of our over 3,900 company stores across the U.S. When you look to the Midwest, the East, and the Southeast, we have 2,640 stores, of which 98% of those are branded Speedway for both the fuel and the convenience store. When you look to the upper Midwest and primarily in Minnesota, we have 275 stores in that geography, 200 of which are SuperAmerica branded locations. That is the brand that we began almost immediately after closing the transaction on October 1st. On October 8th, we had already rebranded our first SuperAmerica location to Speedway to begin that immediate capturing of the synergies that I'll talk about here shortly. We have a total of about 200 SuperAmerica locations at market.
As of today, we have 140 of them that have been rebranded to Speedway, and we expect to complete the rest of those by year-end. After that's complete, we're going to turn our attention to branding into the West Texas, the New Mexico, and Arizona markets for company-operated stores there that will begin early 2019. We're finishing up our evaluation of our proprietary brand along with our licensed fuel brand before we make the final branding decision on the remaining stores that we have in the Southwest and the West Coast. Looking at our retail strategy. With our nationwide footprint, we have a significant organic growth potential in some of the largest transportation fuel markets across the U.S.
As Greg mentioned in his comments, with the anticipated 1.5%-2% demand growth for diesel over the next several years, we want to take advantage of this opportunity of this growth with our continued build-out of our commercial fueling locations, which serve the 18-wheel over-the-road and the regional freight business across the major interstate corridors in the U.S. With respect to M&A activities, we will evaluate high-quality, synergistic opportunities, we're going to maintain a discipline on making those acquisitions such that the returns that we expect from our acquisitions would meet or exceed what we would expect to achieve with our organic growth opportunities. An important part of our strategy is a focus on technology. With the incredibly fast-paced change taking place in consumer behavior, it is imperative for retailers to be able to engage customers across multiple platforms in which they choose to shop.
Our technology investments are designed with that in mind. We can interact with consumers as they're filling their tank at the pump or inside the convenience store at the point of sale with an upsell opportunity or promotional opportunity, as well as through mobile platforms to allow a more frictionless transaction experience for our customers. Data used from our industry-leading loyalty program allows us to identify purchase trends, which gives us the potential to be able to personalize offers to over 6 million active Speedy Rewards customers. Our retail segment is truly a differentiator comparing MPC to our peers. This channel generates stable and growing cash flows. When most refiners were selling or divesting themselves of retail locations, MPC chose to double down. We went from 1,500 convenience stores just four years ago to over 3,900 stores today, aided by two major acquisitions.
As we shared last year, the assured product volume around the MPC refining and distribution system generates significant integration value of over $300 million annually. None of our other refining peers has that same capability to generate such value. Speedway has consistently been a top-tier performer in the convenience store industry. The graph on the right shows EBITDA per store per month compared to our public peers. Speedway outperforms our next nearest competitor by over 20% on this basis. I believe this is the most important metric in our business, and our ability to continue to improve performance here will assure our long-term success. Looking at the EBITDA potential, the earnings and EBITDA capability of our retail segment is significant, and the graph on the left illustrates this.
Bringing together the two really outstanding retail businesses of Andeavor and Speedway, coupled with the run rate synergies that we expect from that combination, gives us an opportunity of a $2 billion a year annual, stable, and growing EBITDA in this business. Looking at synergies, Speedway has an excellent track record of achieving the synergies from acquisitions. Synergies from our Hess acquisition were achieved earlier than expected and at a higher value. I want to just take a minute and remind everybody that we had a very ambitious goal when we first set forth on our synergy target with Hess, it raised some eyebrows. Here we are 4 years later, and we exceeded the level that we had told the market, and we achieved it quicker than we had told the market.
I want to give you the confidence that we know where to find the synergies. We've already begun the process of evaluating the best practices among the two companies, and we're evaluating where those synergies can be obtained. When you look at this slide and you look at the left-hand part of what we expect now, we're revising our potential synergies to a run rate of $300 million a year by year three. The graph on the left shows where we expect to achieve those synergies. There's four areas that we're looking at.
The first two are the primary areas where we're looking at the profit enhancement synergies from higher sales and margins as a result of rolling out our Speedy Rewards loyalty platform as well as leveraging the scale that we have to lower our cost of goods from merchandise purchases that we put into our convenience stores. On the operating expense side, primarily, we're looking at expense reductions as a result of implementing Speedway's labor model once we get fully integrated among all the convenience stores and the common platform that we have at all our stores in the back office and at the point of sale to be able to take advantage of that efficiency. We also expect other efficiencies on the operating expense side from leveraging the scale against various other expense categories.
Our best-in-class retail segment brings diversity and stability of cash flows to a strong portfolio of refining and logistics assets, along with significant integration value. This provides a solid foundation to continue to grow shareholder value. I'd like to introduce Tim Griffith for a financial overview now.
Thanks, Tony, and good morning. I'm Tim Griffith, the Chief Financial Officer of Marathon Petroleum, and we are very enthusiastic about the prospects for our investors here. Let me begin with what will continue to be the core financial principles that will define how we manage this business. First will be a strategic and disciplined approach to investing. As you've heard this morning, we pursue projects that have investment opportunities that have cash on cash returns well in excess of the cost of capital across the business. We fundamentally believe that continued strategic investments is the only way to support meaningful return of capital over the long term. As part of that capital return, our priority is to continue to grow throughout the business cycle, our base quarterly dividends, currently at $0.46 a share a quarter.
We know that this regular, predictable and growing dividend is an important part of the value proposition and provides underlying support for evaluation. We'll also continue our focus on maintaining our current investment-grade credit profile, managing appropriate leverage for all three publicly traded entities, and maintaining a core liquidity position at the parent that protects the business from any combination of potential corporate liquidity events that could adversely impact our financial position. As the company performs in all the segments and continues to generate cash, our focus will continue to be on returning excess cash to shareholders through share purchases. Our track record here speaks for itself. Over the seven years since the company spun out, we've returned $12.4 billion to our shareholders through share purchase, representing 40% of the shares that are outstanding at the time the company spun.
Finally, we'll focus our attention on maintaining the assets in the business to ensure the safety, integrity and reliability of the system with careful ongoing maintenance investments. This stewardship supports both our license to operate and sustains the cash flow characteristics of our high-quality asset base for the long term. Maintaining a solid balance sheet, as Gary referenced earlier, with an investment-grade credit profile with the capability to withstand potential down cycles, enables strategy execution without interruption. We think a capital structure incorporating two times or lower leverage at the parent, excluding the earnings and debt of the MPLX, also supports this investment-grade credit profile. This solid profile allows through-cycle market access and favorable credit terms with our vendors and supplier partners are very important in the business that will be acquiring a billion barrels of crude per year, all on open terms.
The disciplined and balanced approach to capital allocation was central as we plan the combined business for 2019 and beyond. Capital investments in the business, excluding MPLX and ANDX, are expected to be about $2.8 billion next year. Although we certainly believe our commitment to return of capital is reflected in our actions, we will also target, in 2019 and beyond, total capital return of at least 50% of discretionary cash flow, which we define as consolidated operating cash flow, less maintenance regulatory capital spending. We think this commitment underscores the balanced approach to capital allocation that is fundamental to our financial strategy. This total capital return will include the MPC dividend, public LP distributions from the MLPs, and continued and meaningful share purchases, which we expect to be $2.5 billion, at least in 2019, subject to market and other conditions.
Our planned capital investments for 2019 are broken down further on the table at the right of this slide, as well as our initial look at 2020 for all three entities. Of the parent's projected $2.8 billion of investments in 2019, about two-thirds will be for growth projects with a clear focus on investment opportunities that check all of our boxes. With growth investments expected to produce returns well above the risk-adjusted hurdle rates we established for the business and adhere to on a disciplined basis. The consistent focus on return thresholds and minimum hurdle rates for investments has resulted in a return on capital employed, which is well above our cost of capital, producing a 14.5% return for the 12-month period ended in the third quarter.
We understand that strong and consistent economic value add leads to superior total shareholder returns. Our focus on value accretion through return-driven capital investment will be front and center as we drive results in the combined business. Projected capital spending for MPLX and ANDX is also shown here, along with the growth and maintenance breakouts. Importantly, this $3.1 billion combined capital budget will be funded independently with a self-funding focus and expected to be accomplished with no new equity from either MLP and limited parent support. Our investment in the long-term cash generation of the business enables and is balanced by a return of capital profile that will be compelling. As you can see here, dividends have grown by a 24% compound annual growth rate since the spin.
Our target, which will be funded by organic cash flow growth, synergy achievement, LP distributions from the MLPs that Mike highlighted, and benefit meaningfully from continued reduction in shares, will be to grow the dividend by double digits consistently for the long term. This growing base dividend, a critical piece of our capital return commitment, will be supplemented by meaningful repurchase of our own shares. Our history and expectations are captured to the right of this slide. As arguably the most efficient means of returning capital to shareholders, we'll continue to buy our own shares at price levels we believe represent very good value as we manage the long-term capital commitment we've just outlined. The illustrative 2019 EBITDA I'll share with you shortly implies at least $2.5 billion of share purchases next year, in addition to the nearly $700 million we have targeted for this fourth quarter.
This expected fourth quarter activity would bring full year 2018 activity to about $3.3 billion, delivering the share purchase commitments we made for the year. It will also bring total share purchases since spin to over $13 billion. Importantly, the potential cash generation of this enterprise, including the substantial run rate synergies we've talked about this morning, could enable a significant amount of the approximately 240 million shares issued in connection with the Andeavor acquisition to be acquired over the next five years. Investors may recall that the cash flow and earnings per share accretion shared in the transaction rollout included only share purchase assumptions in 2018. The value concentration potential for shareholders with continued repurchase activity is significant. Beyond our capital allocation strategy, I also wanted to spend a few minutes outlining our segment reporting structure we'll use for the business starting this quarter.
MPC's historical reporting, shown in the lower right on this slide, incorporated three segments: refining and marketing, midstream, which has been predominantly MPLX, and Speedway. After the Andeavor acquisition, refining and marketing will include the entire 16-plant refining system and will add the legacy Andeavor brand and wholesale business to the legacy MPC brand and wholesale channels, in addition to the asphalt and petrochemicals pieces, which have historically been part of MPC's R&M segment. Midstream will expand to include both publicly traded MLPs, MPLX and ANDX, as well as midstream assets not in either MLP. As Brian highlighted earlier, the newly named retail segment will include the company's retail operations, including the legacy Speedway business, and all of the company-operated locations, as well as the direct dealer business, which were previously part of Andeavor's marketing segment.
The direct dealer business will be included in retail, as it has characteristics that are more akin to Speedway, given the margin capture all the way down to the retail level. To help investors understand and model these adjusted segments, we'll be modifying and adding some supplemental information to our quarterly updates summarized on this slide. For the R&M segment, we'll include three adjusted regions, Gulf Coast, MidCon, and West Coast, and we'll provide unique reporting for each. This unique reporting will include operating costs, throughput, and margins. Given the reporting system reconfiguration needed as we bring the business together, we're targeting to have the regional refining margin information available for first quarter 2019 results.
For midstream, which will include MPLX, ANDX, and other midstream assets not part of either MLP, we'll provide throughput for pipeline terminals and gathering systems, as well as information on natural gas processed and NGL fractionation volumes. For the newly combined retail segment, which will incorporate all company-operated retail and the direct dealer business, we'll provide location counts as well as key fuel and merchandise volumes, revenues, and margins. As I mentioned, MPC's refining footprint will be broken into three regions shown here. The West Coast, with 711,000 barrels per day of crude capacity, will include Anacortes, Martinez, Los Angeles, and Kenai. The MidCon, with 1,161,000 barrels of crude capacity, will include the four legacy MPC Midwest refineries, Detroit, Canton, Catlettsburg, and Robinson, plus St. Paul Park, Mandan, Dickinson, Salt Lake City, Gallup, and El Paso.
The Gulf Coast, with 1,149,000 barrels per day of capacity, will include the Galveston Bay and Garyville refineries. Going forward, we'll provide crack spread indicators for each region based on the crude and refined product proxies that best reflect the region's supply and product footprints. All the information on this basis for the fourth quarter is provided on slide 89 in the appendix. Given the combination of the business and the absence of reporting on the legacy Andeavor business for the third quarter, we also want to provide an illustration of what consolidated EBITDA could look like in 2019. Using our current business plan, based on the commodity prices and crude differentials shown on the right of this slide, and expected crude throughputs of 2,857,000 barrels per day, the illustrative 2019 consolidated EBITDA could be $12.9 billion.
To be clear, this is not intended as guidance. We offer here only to help outline the cash flow potential of the combined business and provide a framework for our capital allocation strategy. The EBITDA sensitivities on several of these factors is provided on the lower table. We do not anticipate updating this illustration. I also want to spend just a minute outlining our approach to accounting for turnaround costs, which will follow Marathon's approach for the combined business starting in the fourth quarter. As some may be aware, in an acquisition, the acquired entity adopts the accounting policies of the acquirer. I mention this as some investors have asked if in the combination there would be an opportunity to pick the accounting policy, in this case, the deferral of turnaround costs for the combined business going forward.
To provide information that may be helpful to investors to make an apples to apples EBITDA comparison to other refiners who do defer turnaround costs, we show here the turnaround costs incurred by the pro forma business over the last several years. For 2019, we expect turnaround costs for the combined business to be about $900 million. Adding that $900 million to the illustrative $12.9 billion results in turnaround adjusted EBITDA of $13.8 billion for 2019. To aid comparability, we'll provide this turnaround cost each quarter to allow for this ongoing adjustment. We think the combined MPC will create exceptional value for investors. As highlighted here, a strong balance sheet and liquidity position enabled continued strategic investments in the business, producing attractive cash flows and returns, which will fund returns for investors in the long term. This is the long-term equation that drives real value.
At recent valuations, the combined dividends and share purchases over the last 12 months have provided a total capital return yield of over 15% and is one of the most attractive in our space. The combined business is extraordinarily well-positioned and will be managed to drive meaningful and sustaining value proposition for investors. We strongly encourage you to add more MPC to your portfolio. Let me turn it back over to Gary to wrap things up and open up for questions.
Thank you, Tim, and well done to all of our presenters today. As I said on my opening slide, I really expect that you'll leave here today with confidence in the program, confidence in our strategy, confidence in our vision. I don't need to go over the details of these slides anymore, as we've discussed them several times about our operations, the vision for operational excellence. We expect to be an industry leader in all aspects of our business, whether it's safety, reliability, operational excellence. As we grow all parts of our business, I think this all culminates into one thing. We expect to be sharing back with our shareholders by returning capital, either through buying back more shares or through dividend increases going forward. With that, we're going to go to the Q&A session.
I'm going to ask our presenters if they'll come up to the chairs here in front. Then we're going to have facilitators up and down the aisle. If you have a question, please raise your hand. We'll get you a microphone. Then once we get the microphone-- Why don't you pass it to Doug there, Brian, right to your left. We'll start there. We will get a microphone to you. This is being streamed, that way people on the line can hear the questions. If you'll please state your name and the firm that you're with when we start. We'll start with Doug Terreson, please.
Doug Terreson with Core Asset. Gary, the team today provided a pretty strong financial outlook, even with kind of flattish expectations for industry trends, which suggests that synergy capture is a pretty relevant part of the plan. While your record in this area over the years speaks for itself, you guys have done a pretty good job. My question then is, are there management financial incentives or other items that drive your confidence on synergy capture for this particular transaction? If so, could you spend just a minute talking about why you're so confident on delivery?
Yes, I will talk about we have a synergy incentive compensation program for our employees. I will talk about that, it's not just that we need an incentive program. However, we find that we incent our employees, it works. We'll continue to do that. Our synergy incentive program is set up, it's going to be for every employee in the company. The person who hires in today is going to be in this program. It'll be in our annual metrics that you all have looked at our annual incentive compensation metrics. It'll be in those metrics as we go forward, it'll be approximately a 10% metric for every employee as you add up to the total metrics that add up to about 70% of the metrics that we measure.
On top of that, we have a program that, in fact, we just put out an 8-K after our last board meeting. We have a program to incent all the management and above who are making the decisions every day on how we're going to drive these synergies. Tremendous enthusiasm around this program. It's a very low cost in comparison to the synergies we expect to get, somewhere below 3%, which is, I think if we can if you look at the synergies that we are illustrating over a three-year period of time, they would add up. If we hit the numbers like we say, just at the billion-dollar level, it would add up to about $2.2 billion per year. 3% to get $2.2 billion, I think you'll agree is a pretty good return.
I do. Also, it appears that even with shareholder distributions well ahead of spending in 2019, that you guys are probably going to have additional surplus capital, especially in the IMO 2020 environment that Greg highlighted. My question is, what are the priorities for additional surplus capital in 2019 and beyond if, in fact, your assumptions for industry trends, et cetera, which you suggest might be conservative or a little bit better than the outlook today?
Sure. I'm going to ask Tim to cover the last part, but I'll say, Doug, that when we outlined our capital program here, one of the best things, the company that Greg ran and the due diligence that both teams did, one of the real special things about this combination is we didn't have any incremental capital that we didn't already notice within our due diligence. We're in very good shape on the capital side. We outlined the Garyville Coker, the completion of the STAR program, the Dickinson, and some midstream projects, some retail projects. We outlined some capital programs and assets. Tim, why don't you talk about how you look at things above and beyond just the capital outlay?
I think as highlighted, the capital plan, the identification of opportunities that we think make sense for the business have been identified. I think to the extent that we see an IMO uplift even off of what we've projected for the plan 2019 and beyond, our expectation is that that's going to find its way back to shareholders. There's a $5 billion share repurchase authorization in place today. Our board has been very forthcoming in additional authorizations, and that would be our expectation. The capital spending we've outlined here is likely to be sideways and down a little bit. To the extent that the plan exceeds that from a cash flow perspective, and certainly with the share price where it's at today, we would be big buyers, and I think that's a very reasonable expectation on what we do with that excess cash flow.
Good. Thank you, Tim. Okay, Neil?
Thanks, Gary. Neil Mehta here with Goldman Sachs. Two more macro questions for you, Gary. I always appreciate your views on the oil macro. Yesterday, we got an update out of Alberta about the potential for oil production cuts. You guys are the largest, if not one of the largest buyers of Canadian crude. Your perspective on what that could mean for the differentials out of Western Canada, which has been a big tailwind for the business, and then I have a follow-up.
Sure. I'm going to ask Rick Hessling. Where's Rick? I'm going to ask Rick Hessling to take this question here. He's done a lot of work on this ever since they came out on Sunday, and give you our perspective.
Yes. As Gary stated, we've done extensive research on everything Canada as well as all the basins. Our research out of Canada, it's no surprise Canada's long. They've been building barrels for quite some time. I think it's well documented that there's about 35 million barrels in storage in Canada. When we got wind of Premier Notley last week saying this announcement was probably coming, quite frankly, it wasn't a surprise. Preceding her announcement, the fact is a lot of the integrated, several of the big integrated players in Canada had already cut production. This had already been in motion. What you saw yesterday was the classic overreaction in the morning, and I think by the end of the day, you saw the market bounce back up.
The reality is even with Premier Notley's statement in place effective 2019, the market is still very tight. Two things, tight markets, which we have all around North America, if you have any sort of disruption, whether it be operationally with refineries, pipelines, you are going to have massive volatility. We really do not see this changing going into the future, even with the statement that was released Sunday night.
Okay, thank you. We will go to Phil, and then we will come up to Paul. Phil?
Thanks, Gary. Phil Gresh, J.P. Morgan. Two questions for you. One is just, I suppose it is a bit of a follow-up to what Doug was asking on the capital allocation side of things. You have highlighted a ton of great opportunities internally across every part of the business. The only slide that mentioned M&A was retail. I am just curious how you think about the business moving forward. Is the focus really just internally now to get the $2 billion of EBITDA in refining that you talked about and get the midstream growth, given the opportunities there? Or do you think M&A is still a part of the DNA over the next couple of years?
Right, Phil. I have had that question a number of times, and I had this back before we even closed the transaction. I said, "Let us get this transaction closed first." People said, "Well, it is given that you are going to get this closed. What you going to do next?" We have a lot to say grace over here. We have a lot of operational excellence to drive, as you said, to get this $2 billion into the refining marketing side, which I believe we can get. Yes, we have been very acquisitive on the retail side. We have been acquisitive and somewhat on the midstream side, and I would expect to do that, but it has to be self-funded. When you look at the big M&A and the platform that we have today, we think we have a very solid platform. Where would you infill in that platform?
There are a couple of interesting assets, probably not in markets that we would be able to do a transaction. I would say the best returns and the best direction for us over this cycle of what we were outlining between now and 2020-2021, I would say probably our best investments is to really capture what we just acquired here. Capture, improve on operations, improve on maintenance, improve on the retail side, we'll see what happens. I think there's a tremendous amount of high-return organic projects. I believe with IMO, what we're going to do in retail, we have tremendous capture opportunities in front of us that is really going to take our focus and be our priority instead of trying to be acquisitive. What we have really put together here I think is a showstopper.
I'll just ask a quick follow-up. If I take that call it $13 billion of EBITDA in 2019, the $2 billion of refining, whether you're talking about midstream, whether you're talking about retail, it seems like if I put that all together, package it up, you're telling us that maybe EBITDA could be $16 billion-$17 billion a few years from now without overly aggressive assumptions. Am I reading too much into that?
We could be. You look at the sensitivities that Greg outlined, the sensitivities that Don talked about. We think there's tremendous upside potential here, and it's kind of a high-grade issue. If the markets turn out like we think they could, there could be greater opportunities. That's why I think it is so important to really stick to our basics, stick to our fundamentals, get everything aligned and ready to go, because you can capture tremendous value in the assets that we already have, and we don't have to go be acquisitive. I think we get better returns buying back our shares today. Once we've now developed this strategy, we've developed this company that I don't think anybody can touch. I think the way we're setting this up, we can distance ourselves from the competition. Paul?
Thank you, Gary. Paul Y. Cheng, Barclays. Gary, I think you will agree that the winner in the future in the business is really about the flexibility both in terms of the feedstock as well as the product placement you highlight here. In the feedstock, you already have tremendous flexibility. You do 500,000 barrel per day in Canadian crude, 300,000-350,000 in probably Bakken, another 300,000 in Permian. The question is that over the next couple of years, what you see, can you further increase that flexibility? That this is the maximum that you can do in each of the basins? What kind of opportunity and potential we can see from there? How much of them is already reflected in the synergy benefit that you are talking here, the $1.4 billion?
The second question is that when we're looking at seems like management is very confident you can achieve and you have a phenomenal position right now. What really keeps you up at night? What is the biggest risk that you see over the next five years for your business, or to achieve the kind of greatness that you expect the company will be able to achieve? Thank you.
Sure. I'm going to turn it over to Don Templin. Don, you and Rick, why don't you cover the flexibility in the crude side?
Yes. I think, Paul, flexibility, there's sort of two things. You talked, I think, about refined product placement as well as crude. Going into the combination, we had significant overlap around the crude side. I think I mentioned that. We saw that as being a tremendous source of optionality and flexibility. I would say we're literally just two months into the transaction, into the combination. I told you, I believe that the crude opportunity is $hundreds of millions, not sort of the original $100 million that we had contemplated. I don't think we're done finding opportunities. The more logistics assets that we have and the more scale we have across the U.S., the better our opportunity is to be able to add value. I don't know where the next most optimal market is, but I think we have that flexibility.
Don, can I just ask? What I'm trying to see if you have a target over the next couple of years that can you get from 500,000 barrel per day for the Canadian crude into 700,000? The Permian from 300,000 into 500,000, and Bakken from 300,000 into 400,000. Not necessarily you will actually reach that. It depends on the pricing. You may decide that, okay, instead of 500,000 in Canada, you go to 300,000 and vice versa. We're just trying to understand that. Is there incremental flexibility comparing to where you are already?
Yeah. I think, for example, like Permian, the reason we're interested in a Gray Oak Pipeline or a PGC Pipeline is it gives us that incremental flexibility if the market dictates that that's the most attractive barrel to buy. Maybe have Rick talk about what's happening particularly on the Canadian side and
Yeah. Paul, it's a great question, and I want to take a step back and say nobody was more excited come October 1st than my team to do exactly what you're asking. This is what we do every day. If I break down the basins and you look at the Canadian basin, until there's more pipe coming out of the basin, we are limited. I will tell you, the key there to remember is, we are optimizing amongst the refineries. When Don mentioned earlier, $40 million over two months, a lot of that was driven out of the Canadian and Bakken basins, and that is optimization between St. Paul Park, our massive PADD II system, as well as Mandan, Dickinson, and Anacortes.
It's a combination of optimization, and then certainly to go to Don Templin and Mike Hennigan, the assets that we have on the ground that we were able to incorporate into our portfolio October 1st. Conan gathering system, gathering system in the Bakken. You have buying at the lease, which MPC was not heavily involved with, and being able to take that molecule all the way to our refineries and keep the quality consistent. Incredible upside. We will have upside there, and we will have incremental pipe capacity, certainly out of the Permian here to come. I would say there is a lot of upside there.
All right. Thank you. Now the second part of your question, Paul, I'll take. What keeps me up at night? I think as recognized today with the management team we have and how we integrated so quickly, I'm very confident in this team. That doesn't keep me awake at night that we can manage our business. I would say that really if you look at what would be the top one or two issues that I'm concerned about is I sleep very well every night except when I go to D.C. As you would expect, because that's an area that we try to educate, we try to help, and we try to prepare people inside the beltway on what this business means. Sometimes they don't all understand it and go in the direction that we think they should.
I would say excuse me, probably the continued regulatory side would be an area of continued challenge. We have all of the investment pretty much complete to meet all the ultra-low sulfur specs. You look at our capital as we go down the road, regulatory capital is falling off significantly in the years to come. However, we're continuing to work hard to make sure it stays there. One of the big things that we have in front of us right now, the President and his administration have really talked about relaxing the CAFE standards. That is a very big issue to our industry. It could mean 350,000-400,000 incremental barrels of gasoline per day if we were to relax in the arena of where the administration's talking. I believe they're going to do that.
However, you have another side who doesn't want to pivot away from this CAFE standard, and as you know, Congress just changed. We have a lot of work to keep this momentum going. Those would be probably the big things that concern me. Operationally, management, integration, enthusiasm, energy of our team, we've got that. Paul Sankey?
Gary, Paul Sankey at Mizuho. Gary, I had a high-level synergy question, but I also wanted to refer specifically to slide 37, if possible.
Okay.
At a high level, I assume, Gary, that if we were to model out your asset base, put in your assumptions that you've been pretty clear on and roll forward, the way we would judge or measure your synergy capture would simply be by using your existing assumptions, your asset base as you've described it, and then going forward, we would simply look for that EBITDA to come through on the line items you described, I guess. Could you tie that slightly into what you said about the synergy capture measures for employees? Thanks.
Sure. Tim, you want to review underneath Tim's organization, we've set up a synergy capture organization that will be reviewed by both our Audit Committee and Compensation Committee. You want to review how that is going to be captured, and then how we expect to communicate to the shareholders and to our investors on that program?
Sure. Obviously, one of the most important things we'll be focused on for the next 5 years and certainly over the next several. We will have a superstructure within the company that is identifying, vetting, clearing all synergies. Obviously, this is part of a reporting protocol to ourselves, to our Board, as well as to investors. This is going to be a pretty big effort. Resources dedicated to it, potentially outside help to help vet the synergies. This will be, I think from a reporting perspective, one of the biggest
Resource focuses that we'll have as we go forward. We understand that obviously we put relatively large synergy numbers out, and we need to show that, and we understand that we have some accountability around that we'll build toward.
Yeah, understood. My methodology as a financial modeler on Wall Street is just the one I described, which is the fairly straightforward, just run through where you've said the synergies will come, use your assumptions, and then I should get your answer for how much is captured by division.
That's right.
Could we look at slide 37 and try and tie it into that, which is a little bit confusing?
Slide 37 is the operational excellence slide. This is on refining, where we look at the Solomon survey.
I'm a bit confused because I guess Galveston Bay is not really on the scale of capacity, right? That's sort of an illustrative Galveston Bay. Is that correct?
Yeah. The reason that Galveston Bay isn't on the scale is it's an EDC 6 refinery, it's one of the largest in the survey. The curve that you see in gray, that's really some distinct points going from EDC 1, 2, 3, 4, and then it ends at a certain size. Galveston Bay is actually much larger than that. The other one that's not on the slide that we showed was Garyville, is much bigger than that.
Understood. Then if we were to look for Andeavor, which obviously would have a structurally higher cost because it's essentially West Coast, is the Andeavor 18 still in that line where it is in 16?
Well, we really don't have that data point yet, the Andeavor data point. We expect just from the information that we've gathered in 60 days that it has moved down. Still, it's above the Marathon data point.
Understood.
Your point is that I think you're getting at is a good one, is that, structurally, we got two refining systems that are of different size, different geographies. There's gonna be some structural differences.
Yeah, understood. I'll end right here. This is my last bit. How would the synergy tie into those metrics improving? Would we see these refineries come down? Would you get the legacy Marathon MPC further down, or is this not really where we would look for the synergy captures come through given it's the cost?
Well, what we're showing here, Paul, is we're showing specifically at the operating costs of synergy capture.
Right.
The functions that go into this to bring this down are gonna be, and I talked about this in my presentation, turnaround costs. Bringing turnaround costs down at our 10 new refineries will directionally lower down the vertical scale. We become more energy efficient. That's again cutting total cash operating costs. The other factor that allows us to use scale is if we get bigger. If we are able to increase our reliability, increase our throughput, it then allows us not just to move down, but to move to the right. I think that's a real key thing when you look at Galveston Bay. Galveston Bay did not just move down by cutting costs, but they also got bigger by becoming more reliable.
Thank you.
All right. Thank you, Ray. We're gonna go to Jeremy Tonet, and then we're gonna go to Todd.
Good morning. Jeremy Tonet, JPMorgan. I had a couple questions on the MPLX side, Gary, Mike. I was just hoping you might be able to provide some thoughts as far as the 2020 EBITDA guide was nicely above the Street there, and was just wondering what you thought the Street was missing within the outlook that you see in the business that wasn't in the Street estimates.
Mike?
Yeah, Jeremy, I think a couple things. One of the things that I mentioned in the presentation was getting more from existing assets. There's a belief that our L&S business isn't able to grow at the pace that we think it is able to grow. I think that was one piece that the Street was missing. Another piece is we've remained very bullish on our G&P development. We disclosed a little bit more activity today that you'll see, and you'll be able to put in those numbers. I'll also reiterate that the data that I showed showed 2018 going to 2020, but I just wanna remind people, in 2018, we had eight processing plants start up, six up in the Marcellus, but three of them are just coming on in the fourth quarter. There's three of them that are not even in that data.
100,000 barrels a day of fractionator as well. I think you're gonna see a pretty balanced effort from us on both the G&P side and the L&S side, and I think some of the L&S earnings have been missed by the Street a little bit.
That's helpful. Thanks. Just one follow-up on Capline. If that were to be reversed in the future, could you just walk through what that would mean for the MPLX side as far as future growth opportunities or any other thoughts that you could share there?
Yeah, sure. Capline today sits at the MPC level, so that's where it stands. The market is looking for an Eastern Gulf export solution, both light crude and heavy crude. Obviously, a lot of light crude is exporting in various other locations, but LOOP is a facility that's already a deepwater port, VLCC-capable, and we believe it's the best place to have exports occurring out of there. We want to get our Swordfish Pipeline project first going. That's about 600,000 barrels a day, then we're having ongoing discussions with the owners on Capline for a longer-term solution there. Getting light crude into the Eastern Gulf to that port, we think makes a lot of sense.
It also makes great sense if you look at the refineries in the Eastern Gulf. You start Marathon in Garyville, then you have St. Charles, and you have Baton Rouge, all three big plants that can take heavy crude. We're also looking for a heavy crude solution that could go down through Capline. When this happens, this will happen. When this happens, we'll batch the crude, we'll bring heavy crude in, we can bring light crude in. We just have tremendous storage capability at St. James. There's also, we have tremendous storage capability down at LOOP, either in the caverns or tankage that we can use for export. The Eastern Gulf really has a thirst for more heavy Canadian crude. Todd? Okay, we'll go there then we'll come back to Todd.
Hi Gary. Shneur Gershuni with UBS. Two questions. First, I was wondering if you could talk about the PGC Pipeline. You mentioned there's some negotiations with ExxonMobil. Is this a preliminary discussion or is this something that has advanced stage?
Mike?
Yes. We're at the early stages. It's exploratory at this point. As everybody knows, there's been a lot of projects that have been announced in the crude world. We still feel very confident on our PGC Pipeline standalone, but we were noticing that the objective of the Plains Exxon Lotus project was very similar, driving to similar markets. We want to get barrels into Galveston Bay is a high priority for us. Capital efficiency became something that we started to look at. We have engaged in discussions with the parties. Both projects have had meetings and have started, I would call it exploratory discussions. The capital efficiency is a pretty strong incentive for us to see if we can get it together. We're really going to run parallel paths, Shneur.
We're going to keep going with our PGC Pipeline project, and then we're going to see if this project coming together is an alternative.
Great. A follow-up question. With respect to Andeavor or ANDX and MPLX simplification, I was wondering if you can walk us through the process that you're looking to proceed with. Has a conflicts committee been formed? Has an initial proposal been made? Just any color with respect to that process.
Sure. I'm going to have Tim has been in contact with both conflicts committees, and he'll go through the process of where we are today.
Yes, Shneur, both conflicts committees are formed. They are in the process now of identifying financial advisors. We'll work through the process and update the market at the appropriate time. We don't want to get out in front of that process. We need to let that play out. It needs to be a pure, a fair, and independent process, and that will play out. We'll give an update at the right time.
Thank you, guys.
Okay, Todd?
Thanks, Gary. Todd Gilbert from TPG. You guys have done a spectacular growth with organic growth at MPLX. I think over the last 8 quarters, we calculated around 17% organic growth there. We did a similar analysis with ANDX and saw the growth was less than 1% using a similar methodology. When you look at where the units of ANDX and MPLX are trading, they're trading around a similar multiple, potentially indicating that the market expects a buyout at an equal price or a slight premium for ANDX relative to MPLX. In your synergy targets, you highlight only $55 million of midstream synergies out of the $1.4 billion. For an asset that's potentially a low single-digit grower in ANDX, your historical drop-down acquisition price is around 7.5 times EBITDA. How are you thinking about this?
It seems like from an MPC perspective, you have three times the economic exposure to MPLX versus ANDX and no real requirement to buy in ANDX. The market appears to be demanding a pretty high price for it. How are you thinking about that?
Right. As Tim just outlined, I'm not going to front run the process of the conflicts committees that are engaged. You're looking at things, the public numbers, I think you're looking at things appropriately. I think any time that someone believes that there's maybe a takeover, that with that there must be an associated premium. I wouldn't go that far in this work. It's clear, as we stated at the last earnings call, that the coverage ratios are not balanced. In order to be able to be self-funding, in order to take care of organic growth, you're going to have to have strong coverage. We've been able to move the coverage up to 1.4, as Mike said earlier.
When you look at the ANDX embedded both organic and I already talked about coverage, but organic growth going forward and any type of acquisitive type things, you need to peel the onion back as well and understand what's in there as far as parent support. Our goal as we look at things going forward is that we're not going to continue at the same parent level support that's been there in the past. We have to get the coverage ratios up. One thing on the synergy that you mentioned, that $55 million for the synergy, correct me, Mike, if I'm wrong, but that $55 million is just in the midstream of what we have today. It doesn't include any synergy of combining, aren't I correct? It doesn't include any synergy of combining ANDX and MPLX together. Okay? Yes.
Hey, good morning. Spiro Dounis from Credit Suisse. Just wanted to start off here on the Permian. Couldn't help but notice, obviously, pretty strong shift at MPLX out of the Northeast, I guess into that region. That comes as no surprise, but you talked about building out that super system there that's going to look like the Northeast, and I think a big part of that blueprint was the remnant, of course, with MarkWest. Going forward here in the Permian, is that part of that blueprint, or do you think you can do that all organically?
Mike?
I didn't hear the whole part of the question. Could you just repeat the early part? I'm sorry.
Sure. No, just on the renewed focus here in the Permian. It sounds like a pretty strategic shift here out of the Northeast into the Permian, maybe letting the Northeast kind of grow organically from here. As you look to the Permian to build out that super system like you did in the Northeast, a big part of that was through M&A. I'm sorry, in the Northeast was M&A. Do you see that same blueprint playing out in the Permian?
Yeah, it's a question I'm asked often. Are we going to get in the M&A game in the Permian? One of the things that I want to leave the group with is we are a big believer in capital discipline. A lot of the M&A activity that's occurred in the Permian has been beyond what we would consider a good return project. One of our messages is return on invested capital is a high priority for us. Right now, what we tried to lay out for you today is the first part of your question is right on. We are trying to put more capital to work in the Permian and balance out what we have as a great footprint in the Northeast. Putting a little more emphasis and getting more of a balanced footprint is something that we are concentrating on.
As far as invested capital, we've predominantly been 80/20 to the G&P L&S side. We're going to balance that out and put a little bit more activity on the L&S side of the equation. Hopefully what we're showing you was mostly organic growth. We're going to continue to participate in the processes from an M&A standpoint. We're not going to overpay for an asset. That's something that's core to our beliefs, and we're going to try and grow it organically. I mentioned a couple projects that we have in development. We're going to continue to grow out the processing, which should feed Whistler and BANGL, two projects that are in development that we hope to get across the finish line that'll get us into the long-haul pipeline, ultimately get us more into the export game.
I said earlier in my presentation, there's five export locations. We're a big believer that U.S. hydrocarbon growth is going to make its way to an export facility. It's mostly organic. We'll continue to look at M&A as a one-off, but it's not in our plan. When we give Gary our plan going forward, it never includes any M&A.
Thanks, Mike. Second question, just wanting clarification on the 2020 CapEx, the $2 billion. Does that already include the new BANGL Pipeline and two fracs, or would that be incremental?
Yeah, again, I'm sorry, I couldn't hear the first part.
No, no worries.
He wants to know, does the $2 billion of capital include the BANGL, or would that be incremental?
Okay. There's a little bit of spending there because those projects are going to be ramping themselves up. We have a little bit of engineering and that type of stuff early on, but the most of the spending is beyond that timeframe. We're looking at towards the end of 2020 and into 2021 for the project. Kind of back-end loaded is the way to think about it right at this point.
Before I go to Sam, your question was spot on the Northeast and the Permian, and really to Todd Gilbert's question as well. When we bought MarkWest, there were a lot of questions on the Marcellus, the Utica, and is this a good acquisition? If you look at where did the 17% growth in organic capital or the organic capital that was deployed, where did this growth come from? The majority was in the Northeast, and we had Hidalgo down in the Southwest. Now we have the Northeast and we have the Permian. The Permian, both crude and natural gas liquids. You look at the two goalposts that we have are in the two best basins in America, if not the world.
We are in great position, I think, to be able to capture further from that prior acquisition that we have delivered on and some of the projects that we're looking at here. Sam?
Thanks, Gary. This is Sam Margolin from Wolfe Research. I guess to start, just tying back to Mike's point about how a lot of your asset development is culminating in export facilities or tapping that market, it would be great to hear your insight as to how you see that developing commercially. We all know that the hydrocarbons are going to be there to export, is there any friction in the market globally to where these molecules might land or how you see it developing from a commercial standpoint?
That's really an interesting point, I think a very prudent question that everyone needs to think about. If you look at what's going on in the global space today, we have all of this excess light sweet crude here in the U.S. That's what is being exported out of the U.S. The Middle East producers, namely Saudi Aramco, Iraq, Kuwait, want to continue to ship into the U.S., albeit today they're getting a higher premium to go to Asia than they are today. As we expand the LOOP, the deepwater port, and can get this light sweet crude there, as we expand out of the Texas side of the Gulf and have more light sweet crude, both of those export markets, the arrow is really pointed at Asia. That's going to be competition against the Middle East producer that's going to Asia today.
What is the crude and how are they going to be able to compete in the marketplace going into the future? I think it's going to have to be the medium, whether it's a Mars and an Arab Light is kind of a Mars proxy, if you will. I believe that's going to be the crude that is going to have to be imported into the future if they want to continue their market share in the U.S. I think that's more competition for the medium type crudes into the U.S. Gulf Coast that can compete against the Mars and some of the offshore crudes that are coming on board. It's going to be another great potential for strong Gulf Coast refiners and those refiners who have the pipeline conduit to move that crude up to the north.
I think you're going to really see that evolve going into the future.
Okay, this is sort of related. As this business scales and your infrastructure really develops, it invites potential for your trading business to exceed maybe the volumetric capacity of the assets that you're adding. In the financial community, we can't forecast that. How do you think we should think about your opportunity set trading versus optimizing the closed system and thinking about it that way?
Sam Margolin, that's something that we will look at into the future. Historically, we have not been rewarded for trading for a profit. We've not been rewarded. I remember being counseled at one time by my friend Paul Y. Cheng, saying, "Go run refineries, don't become a trader." It was very good advice and very strong advice. You aren't going to see us going towards that direction of being a pure trade for profit, but we have a much bigger platform, a much bigger scale than we have today. The first step that we're going with this. I applaud Greg Goff for how he put the Conan Crude Oil Gathering System together, and he put together in the Rockies, in the Permian Basin, the ability to buy and gather at the lease and takes out that middle market.
If you take out that middle market, that possibly gives you the ability to trade from there and arb into the final hub. We're looking at that side, but you're not going to see us go set up a trading floor per se. I'm going to continue to take my good friend's advice. Okay, Matthew?
Good morning, Gary Heminger. Matthew Blair from Tudor, Pickering, Holt & Co. I had a question on slide 40, the Garyville coker project. What is the target crude for this project? If it's WCS, do you anticipate either taking incremental pipeline commitments or perhaps building your own new pipelines to help deliver those barrels?
Sure. Ray?
Yeah. I'll start off on this, then I'll let Rick Hessling join in. As far as the Garyville third coker, we have a lot of optionality from that third coker. We have the optionality of incremental heavy crude coming into the refinery, and we're not thinking new pipelines for that. We have the optionality for cut resid. We're putting those infrastructure in for that. We're looking at, hey, what's the most economical thing to fill that, be it cut resid, be it heavy crude, be it asphalt, if the economics are based on that. The overall economics are based on a balance of those three to fill that 50,000-barrel-a-day coker. I'll let Rick join in with some of that because we've talked about this a lot as we progress this project.
Yeah. It's a great question, and we've had a lot of conversation on it. We have a lot of optionality. As Gary mentioned earlier, Capline could be an option for heavy crude coming up to Garyville. We would have a significant advantage going that route. That's an option. We have Arab Gulf options, which we believe, as Gary stated earlier, are going to come our way in time as the light sweep clears to Asia and other markets. Then there are your traditional Maya and other grades. We feel very confident in being able to fill the coker and fill the slate with a very economic barrel.
Thank you. My follow-up, there was some talk about moving increasing product into Mexico. We continue to marvel that PEMEX reports a 24, 26% fuel oil yield, where the U.S. is at 2, maybe 3%. We've already seen a refinery in Trinidad shut down earlier this year on concerns of IMO competitiveness. My question is, in an IMO environment, given what you know about refining, given your expectations on IMO, how do these Latin American refineries compete? Do you expect any incremental shutdowns or reduced utilization going forward?
Sure, Matt. I'm going to ask Greg. Greg has been the architect on the Mexico strategy, and let have Greg talk about that first.
Yeah. I think it's a major challenge, particularly for Mexico with their configurations and their crude supply. I think from a product standpoint, it's probably not going to materially change what their requirements are to meet their local demand. They basically have heavy crude in refineries that actually want light crude, and they need to determine where they're going to buy in light crude and sell heavy crude and that. The work that we've done to look at their system, you're exactly right on the yields of the resid that comes out of those. It's going to be significantly disadvantaged here come IMO time, and I think they'll just continue buying the product in, and they're going to have to make structural changes in the business to cope with the world going forward, and they haven't shown the ability to do that yet.
Okay, Don, why don't you just share with everyone. This slide indicates how we're going to come around the west, or the slide you're speaking to, come around the west coast of Mexico. Talk about how we're supplying both coasts today and what our plans are into the future.
Yeah. I tried to touch on that a little bit, Matthew, when we had our discussion. We view sort of central Mexico, where they have a lot of infrastructure currently. We've historically been providing refined product in really large volumes, and we've been shipping that from the Gulf Coast, so Garyville and Galveston Bay. What we see is an opportunity, and what's exciting, we think the strategies are compatible and complementary. There's an absence of infrastructure in the northwest part of Mexico and some of the other regions. We want to be the ones that provide lots of refined product where there already is infrastructure, and we want to be the ones that invest or support investing or partner with people in the areas that are going to require future investment.
We don't believe that Mexico has the capability to do that future investment all on its own. They're going to have to make a lot of decisions about where they're going to make investment. We think investing in terminal capacity, so we talked about Rosarito, Sinaloa, the branded stores, we think that gives us a real good opportunity to continue to place refined product. As we think about the global, Sam, I think in response to your question on the refined product side, long term, we're looking at the markets that we think will have the most incremental need for refined product compared to their refining capacity. We see Mexico and really Latin and South America as being really good opportunities, are going to continue to leverage that.
I think long term, probably if you look at Africa is a continent that will have higher refined product demand than they will have capability to meet through their refining capacity. As we think about exports, we think about we want to move our low-cost refined product to the markets that need it the most, exports give us that capability.
Okay, Roger?
Yeah, thanks, Gary. Roger Read, Wells Fargo. I was just wondering from a returns approach, 50% cash to shareholders minimum and the 30%, well, 20% target IRR, but it looks like you're achieving 30% on refining. Do you look at anything in the portfolio, refining, midstream, retail, that doesn't hit those targets that maybe is a candidate for disposition? You don't necessarily need the cash, you put together a fairly sizable company here, does everything fit really the way you want or is that process of evaluation something that's still going to come?
We're evaluating. In fact every year when we go through our annual budget process, one of the keys are we look at the assets and we kind of strata the assets and the returns. We're not married to anything within their portfolio, but we look at it on a consolidated basis. Within the retail side, we have a nice portfolio of assets that we have out. Tony is working with Brian's team on. I know we have 150 or 170 retail assets that could be put in a package to help some of Brian's direct dealers or jobbers in the future. Mike on the midstream side, has some assets that we may look at if they don't hit the type of returns we want and they don't hit the consolidated bottom line, because we look at everything on a consolidated basis.
Yes, we don't have anything on refining today that we have a for sale sign on. We certainly do in retail and a couple of things that we're looking at in midstream.
Just a quick follow-up. You mentioned earlier the headache that is Washington. Any thoughts on the RFS, some of the proposals that are out there? Do you look at a divided government as the kind of thing that maybe puts?
Well.
a yield sign at best, a halt sign overall?
Yes. The Renewable Fuel Standard, I would say the benefit we have right now, I spent a lot of time in D.C. on this, is that both sides of the aisle agree this RFS doesn't work. In fact, the new majority coming in are probably a bit more proponents that it doesn't work and they don't like corn ethanol because you have to look at the full cycle analysis on emissions from corn, everything from planting, harvesting to refining it into ethanol. We have both sides that don't agree. There's a new proposal that just came out, Shimkus-Flores proposal. It's not legislation. There was going to be a subcommittee hearing this week. With the president's passing, that has been delayed now. It probably won't happen until January.
Some proposals there that look at different octane specs going forward that may look at how the CAFE that I talked about earlier, how the CAFE changes would fold into this. Long story, I don't think anything's going to get accomplished. We had proposals on the table that we still believe really could have helped, now we have a new Congress. I'm not saying we're going back to ground zero, we're not too far out of the starting gate and how we're going to have to go back and really work this. In the meantime, I will say that two years ago, we were talking about $1.40 RINs, $1.60 RINs, mainly being around $1 RINs for the majority of the last couple of years. We got RINs now inside $0.10.
A lot of this work that we've done has really helped to bring this issue under control. While I'm not pleased that we don't have legislation, all the work we've done has really helped the industry. Yes, sir, and then back to Paul.
Yeah, Ross Pay with Wells Fargo Fixed Income, this is a question for Gary, Tim, or Mike. MPLX has substantial organic growth here, great looking balance sheet.
Its yield is quite elevated alongside a lot of other MLPs. How are you thinking about the structure of the MLP? Are you looking at a C corp at some point? We also saw Valero absorb their MLP. Is that of any consideration? Lastly, given the size and balance sheet of MPLX alone and in combination with Andeavor at some point potentially, is BBB a likely rating you want to go for, or are you okay with current ratings? Thanks.
Sure. I'm going to have Mike cover part of this, and Pam, if you want to help, and then I'll have Tim cover when we look at the overall balance sheet.
Ross, thanks for the question. We are very frustrated where our yield is trading, and that's one of the things that we talked about is, going forward, if we don't get rewarded in certain regards, we'll change our financial policies. As Gary just mentioned, Pam's going to comment in a second. Investment grade is paramount to us. That's something that we hold near and dear as we execute our plan. A couple of things I will tell you, as people were asking a question earlier is, where did our surprise from Wall Street come from? 2017, we had a 1.2 something coverage. We're now like the 1.4 something coverage. We're still holding the balance sheet at a really respectable leverage level. We find that important. To the question that was asked earlier is, return on invested capital is very important to us.
I think overall, our view is stay disciplined, stay conservative, watch the balance sheet, the market's going to do what it's going to do. We're frustrated as to where the yield is, we're trying to do everything that we think is in our power that should create value. I'll let Pam have a comment there.
I think actually you did quite a nice job covering it there, Mike. Just on the credit rating, certainly the size and scale of the partnership at this stage deserves a very strong credit rating, we're going to defend the investment credit profile that we have today. Ongoing, just looking at bringing in additional third-party business with the strong counterparty exposure that we have with our sponsor. This is a rock-solid credit for anyone on the fixed income side. Really attractive company that we have today with really terrific opportunities ahead of us. We're very excited about the prospects for the company in whatever form it is, whether it remains an MLP or goes to a C corp. I don't know, Gary, if you wanted Tim to talk about that or if you wanted me to talk about that.
Go ahead.
Well, there are a number of different considerations as it relates to structure. Certainly, we continue to value the tax advantage that a pass-through entity provides, that helps also with the coverage. If you go to a C corp, it only puts you on a path to be a taxpayer at some point down the road, although we, like many others, would have the benefit of a tax shield initially. There are also considerations around what does it really get you? Unless you have complete independence from a governance point of view, you can't participate in a number of the different indexes. We certainly wouldn't want to trigger an adverse tax impact for our sponsor. There are many different considerations.
I don't think that it's a real clear-cut decision for the partnership or for MPC at this point in time, but it's certainly something we'll continue to evaluate.
Thank you.
Yeah, I would just add to that. We're constantly looking at this structure, as Pam has mentioned. First of all, we don't see a valuation difference much between the space, whether you're a C corp or an MLP. The space hasn't had a lot of incoming cash flows to support it. It is something we'll look at. As Pam mentioned, there's some pros, there's some cons, we'll just continue to evaluate it.
One of the things that Mike clearly outlined to your question, I think we have one of the best growth profiles in the entire MLP space. Understand there's not a lot of funds flow into the MLPs. One of the best positions and tremendously undervalued. If we don't see the improvement in the recognition of that value, we may look at start buying back units instead of paying out incremental distributions. Prashant, and then I'll come over to Paul.
Thanks. Prashant Rao, Citigroup. I have one sort of more detailed question and then a bigger picture question. I'll start with the detailed one. Within the capital return to shareholders framework that you've laid out, which we appreciate, thinking about projects coming on to look through 2023, there's timing. Some years you have a little bit more capital spend, some a little less. Within that, how should we be thinking about working capital directionally? I'm thinking about this in terms of when we're doing our calculations to see what the buyback could be. Is there anything that we should be thinking about directionally, given there's going to be puts and takes there?
Sure. Tim?
Prashant, I wouldn't expect any structural movement on the working capital side. It certainly is going to be a component of operating cash flow, which will be a piece of the equation. As we sort of model the business over the next four or five years, we don't see anything that's going to structurally impact the look on working capital. We've excluded it, I guess, effectively for purposes of that return profile, and would not net be an impact. This is, again, sort of the balance. I think in any specific period or specific year, we'll see what things look like. Working capital certainly could be an impact. But I think as we look at the long term, we probably look at a cumulative neutral working capital profile for our planning.
Thanks, Tim. Then the big picture question, Gary. Obviously, you have a great and talented team here that you've assembled. As I look through the profile, you've got really a five-year plan here where the culmination of all the synergies and projects really comes through in 2023. I think one of the questions we get from investors is, your DNA, your culture is imprinted across this. Can you maybe speak to you being there through the next several years to be at the helm for this? I'm sure you've gotten the question before, but given that we have this forum, perhaps it might give an opportunity to address that.
What's your definition of several? That's always the board's decision, how long they want me to hang around. When we put this transaction together, Greg and I spent a lot of time on this. The key thing in putting this transaction together was the tremendous trust we had in each other, the tremendous understanding of the business we had in each other, and the friendship we had that really allowed us to put together a great transaction. We talked about how we go forward. I went to our board, and I talked about this transaction, and they said, "We love this transaction, we love the strategy, but only on one condition, and that's you'll agree to stay for a while." It's in the proxy, so you know what the dates are. I just turned retirement age in September of this year.
However, I feel like I'm about 45, so I have a lot of energy, and I want to continue to do this. I agreed with the board that I'd stay on a few years. That was the agreement if we wanted to do this transaction, and that's the agreement I had with Greg, that if we want to do this transaction. I will say, this isn't about me. This is about how do we develop this team, and I think as illustrated today and exposing the team to the analysts today, I'm very confident wherever the board decides to go into the future, that we will have the team ready. Paul? Thank you, Gary. We're going to go to Paul, then we have one more question back behind you there, Brian. Paul.
Thank you, Gary. It's Paul Sankey. I have to say the previous question was well put and well answered. In the style of our common friend, Paul Cheng, I'm going to have my second quick question here. Gary, this is the short-term element to this long-term, essentially it's OPEC. I'm heading to Vienna tonight, I just wondered, I don't want to get too bogged down in the near-term sort of noise, perhaps if you could give us a quick view of that and then perhaps a more strategic CEO level view of where you think this organization is going and what it means to you. Thank you.
For the OPEC organization?
Yeah. Basically, I mean, I'm heading for the meeting tonight. There's still tremendous uncertainty. We've got Canada, or at least the states of Alberta seemingly joining the organization, et cetera, et cetera.
I'm not going to comment on whether they're joining or not, okay? Yes, this is a very important meeting, like almost every OPEC meeting is very important. I answered to Sam's question earlier on how we see the dynamics changing. OPEC had done a very good job. You step back, of course, I represent the downstream. I represent the consumers. Lower feedstock costs means more discretionary driving or non-discretionary driving, I should say. That's all good for us. You have to look at this globally and how do you ensure you have more barrels coming to the market, how you ensure you're supplying the market. You look at our president today, who I think has been the best president ever for the energy side of the business. You look at his desire and the administration's desire is to have lower costs.
The other desire of this administration is to have energy dominance from the U.S. I think all those things are coming together. I think OPEC, they had really slimmed down and got inventories in check. If you look at the five-year average, going in at the end of 2017, inventories are really coming down, continued to come down into 2018, but the U.S. production kept coming and kept coming and kept coming. I think you're going to see a cut here. I would be very surprised if you didn't. Probably somewhere in the 1.2-1.4 range is where you're going to go, is where I would expect it to go. The key players, of course, are the Middle East producers, Russia. The balance of the OPEC members today, I think they're just going to follow along with the top two or three players.
That's what it appears. I think you're going to see back as I answered before, you're going to see a change in the dynamics of what crude moves to what regions of the world. The light sweet crudes from here are really going to compete for those light sweet crudes that heretofore have been going into Asia and a $3-$5 premium. I believe, Rick, today the premium is still in that range, if not just a little bit higher. Right. You said you're into the long term, not the short term, but that's where they're seeing it today. I believe that's where you're going to see the market continue to be unless more competition comes in.
I will say the Asian refiners want more competition coming in, which comes back to if they want to continue their market share, you're going to have a different assay of crude coming in to the U.S. But OPEC's going to stay together. They have some bumps in the road, but they're going to stay together. I think Khalid Al-Falih, who's a very good friend of mine. While he's not the head of OPEC today, he's very strong, and he is the key influencer to that market. I'm very convinced that he will be able to bring the group together. Let's finish up right back here. Craig?
Thanks, Gary. Craig Shere, Tuohy Brothers. I don't know if Mike maybe wants to respond to this, but a lot of discussion going back to midstream about how the valuations aren't there. Maybe you mentioned, Gary, the possibility of even buying in units at some point. I just noticed that the 2020 guidance is comfortably ahead of the street. I think the concern is not the economics of production and getting the volumes, but where the end markets are and what basins are going to compete, if we can't export at least gas. My question is the confidence leading into 2020 guidance and the inevitability, almost regardless of Henry Hub pricing, of volumes filling up these growth projects in the Northeast, given the de-bottlenecking with all the pipelines in that region. Just basically, how confident are you guys that this is inevitable?
Mike?
Yeah. We're really confident, Craig. I will tell you it's one of the things that frustrates us because there's this bear case out there about the Northeast and what's going to happen. We firmly recognize that associated gas in the Permian is the cheapest gas. I think what a lot of people miss is how important the Northeast still is to the development of natural gas going forward. A couple of things. I said in my prepared remarks that the Marcellus breakeven is as low as anything out there. It's semi-associated, is the term we use for it, because it has a lot of liquids in there. Even in the case if there was some rationalization, there's other basins that would be coming back before that. The dry would be rationalized before the wet.
We have a lot of very detailed discussions with all the producers in there. We have a capital discipline. Our assets up in the Northeast are essentially full, so we're doing just-in-time investment. We feel really good about it. I tried to say a couple of times today, we built six plants this year, and we've given guidance out to 2020, which is not too typical for us. We're still pretty bullish about what's happening out there. We know long-term LNG has to develop for the macro to go out to 2025. We recognize that. We really think there's another thing that the market is missing as far as the development that can occur in the Northeast. It's also got to occur in the Permian, too. We talked today about our Whistler project. There's only a couple takeaway projects that are in the Permian.
If the Permian's got to grow to the level that it's going to grow, that's another reason that we're moving our balance down into that area. If we have a really strong Northeast and a developing Permian. If Permian develops more like people think, great, we're going to be involved in that. If it doesn't, we have a strong foothold, and we're in a solid position. We like our position. Hopefully, you got a lot of confidence today with what we put out, and we're feeling really good about the business.
Okay. Thank you to everyone for attending our Investor Day conference. It was a pleasure. Great questions. Thank you for your support, I look forward to seeing you again soon. Goodbye.