Very good. Well, good morning and welcome. My name is Tom Kaczynski. I am Marathon's relatively new VP and Treasurer of Finance and Investor Relations. I would like to welcome you this morning to Marathon and MPLX Analyst Day. I think you are going to find that we have a very exciting and informative session for you this morning. Before we get started, I would like to introduce members of the team that will be presenting here today. We have Gary Heminger, our President and Chief Executive Officer for both Marathon and MPLX. Don Templin, MPC's Executive VP, Supply, Transportation, and Marketing, and MPLX Executive Vice President. Rich Bedell, Marathon Senior Vice President for Refining. Tony Kenney, President of Speedway. Pam Beall, Marathon Senior Vice President of Corporate Planning, Government and Public Affairs, and MPLX President. Frank Semple, MarkWest Chairman, President, and CEO.
Nancy Buese, who is MarkWest Executive VP and Chief Financial Officer. Tim Griffith, Marathon Senior Vice President and CFO, and CFO of MPLX. Also with us today we have Mike Palmer, MPC Senior Vice President of Supply, Distribution, and Planning. John Quaid, Marathon's Vice President and Controller. Before we get started, also, I would like to point out there are some safety cards under your seats or on your table. The cards include a map and instructions in case there would be an emergency. Also, I would like to point you to our safe harbor statement. It's obviously a reminder that we will be making forward-looking statements this morning, both in the presentation and in the following question and answer session.
Our comments could change, and of course, included here is the safe harbor, and you'll find the same statement if you want to take a look at in our SEC filings. Our prepared remarks this morning will last about 90 minutes, and we'll follow up with a Q&A session thereafter. There are no scheduled breaks, so if you do have to get up and leave the room, please feel free to do so. With that, I will turn the presentation over to our President CEO, Gary Heminger. Gary?
Thank you. Well, good morning to everyone, and I appreciate you attending our analyst meeting. This is the third analyst meeting we've had since we spun the company in 2011. As we were preparing our remarks for this meeting, it became very clear to us that what I really want to talk about is where we started in 2011, then I was back here in 2013. In both cases, I explained to you what our plans were, what we were going to do. Today I am going to start off by talking about the achievements of what we talked about in that short period of time. The most important thing that I want to get across is I believe that leads to our credibility. You will see that in all cases, what we stated we were going to do, we have overachieved in accomplishing those goals.
You'll see that that is the framework of what we're going to talk about today. During our 2011 and 2013 meetings, I talked about things that are on this slide, where we're going to enhance refining margins, grow our Speedway and Marathon brand volume, pursue selective acquisitions and mergers, and therefore grow the stable cash flow parts of our business. At all times, being capital disciplined and returning capital to shareholders. I think it's very important to illustrate in these acquisitions that we've pursued and have closed, in all cases, they were high-quality, long-term assets. We're not here to grow, just to say that we're growing. We have been able to pursue these investments, put them together, but in all cases, they're very high-quality assets.
We've been able to deliver shareholder value through this transformation, and this timeline illustrates the key marks throughout the last four and a half years. Illustrates really the reason for the growth in our share price, now at approximately 175% since our spin. I believe you will see during our presentation that we still think there's tremendous value that is not reflected in the share price. Let me talk about the basic tenets and the centerpiece, if you will, of what our team is going to talk about today. That's our priorities for continued value creation. First of all, and it's our license to operate, we'll maintain a very strong safety environmental performance, and I'll go through some of the metrics here in just a second. Secondly, we're going to balance our capital returns with value-enhancing investments.
Both capital returns of buying back shares, continuing to have the rhythm of our dividend increase that we have illustrated prior, also with the disciplined capital investment to have a growth part of the equation as well. You'll find that our investments are not about necessarily growing volume in refining, but enhancing margins within refining. You'll see that Rich is going to talk about the centerpiece of refining right now, you recall in 2009, we finished a big Garyville expansion. What we're going to talk about now is that the bones, if you will, of the Galveston Bay refinery. It's a tremendous refinery. It just needed a lot of care and a lot of management and a lot of TLC.
We're now going to show you how we're going to harvest Galveston Bay, the investments we're going to make at Galveston Bay with very high returns over the next four to five years. At the same time, we're going to continue to increase our export capacity. Don Templin will talk a little bit about our exports. All in all, this strategy is about increasing our margins through process improvements. Lastly, we'll talk about our peer-leading distribution growth at MPLX and growing our Speedway operation. In both cases, high-value businesses, long-sustaining cash flows. That's what we talked to you about in 2013, and that will be the centerpiece of what we're going to review today. First of all, on safety, as I say, this is our license to operate. I'm very proud of our team and the actions in which they've been able to execute and implement.
As you can see on an OSHA recordable incident rate, we continue over the last 5 years to be a very solid performer, beating the industry average, and very solid on our days away rate as compared to the industry. Our designated environmental incidents as well continue to be industry-leading on how we perform. This just isn't in refining. This is across our entire pipeline Speedway operation as well. Before I get to the dividend chart here, I want to make a key point. Within our refineries, we have four of our seven refineries that are VPP qualified, and very few within the industry meet this criteria. Another important point, the USEPA puts out an energy efficiency metric, and Marathon has, over the last 6 years, we have received 33 of the 44.
Therefore, 75% of all of the energy efficiency awards that have been put out by the USEPA have come to MPC. We think that is a building competitive advantage on how Rich runs his refineries and able to be able to keep our costs very competitive within that group. As far as returning capital to shareholders, we've had a 31.5% CAGR with our dividends. We have increased our dividend 5 times, and we expect to continue a very strong rhythm of our dividend growth going forward. At the same time, our returning capital to shareholders, we have authorized $10 billion of share repurchases. We've repurchased a little over $7 billion of those shares, which has resulted in a 27% repurchase of shares since we spun the company.
A very important metric, and Tim will review how this leads to us having one of the highest returns of capital to our shareholders and unit holders. Going forward, looking at our capital budget for 2016, we're outlining and announced we just had approval from our board this Monday, total budget, $2.5 billion of that will be within MPC. We have listed here about $1.1 billion from refining and marketing, a little over $800 million on the midstream side, Speedway, nearly $400 million, and additionally, some money spent on the corporate side, which equates to, and this is what I said we were setting out to do in 2011 and 2013, is that we're really going to focus on growing our midstream and those businesses that have much more of a ratable cash flow and a much higher multiple in the valuation of your company.
As illustrated here, we're going to invest about 60% in total in between the midstream and MPLX, another 9% in Speedway, and then about 11% in refining margin enhancement businesses, which therefore will result by 2020, we expect to change the complexion of the total company. That complexion being as illustrated here, the cash flows from midstream will almost be the same size as those from the R&M side of our business, and Speedway being a very strong tenant as well. Let me take a few minutes to talk about the MPLX MarkWest combination. As you know, it was announced on Tuesday that this transaction was approved by the shareholders, gaining almost 80% of the vote from those that cast their ballots. This adds scale and diversity to MPC.
I've had a lot of questions over the last couple of years on MPLX and what is your strategy within MPLX. This is why we went out and worked with MarkWest because we felt MarkWest was the highest quality asset in the space, the highest quality asset of where we see the business going forward. That is, yes, MPLX and MPC, we had a tremendous drop-down story, that drop-down story was only going to last so long. If I look out over the horizon on the downstream side of the business, yes, maybe you'll build a crude pipeline now and then. Maybe you'll build a refined products pipeline now and then. You weren't going to have any scale and size to be able to grow MPLX into the vehicle that we want to take this long term.
Therefore, we stepped back and really looked, this wasn't just a shooting-from-the-hip type of a transaction. We've studied this for the last two years on where do we see the business going strategically. It was very evident that the natural gas liquids side of the business is where the predominance of investment was going to be. Probably somewhere between $500 billion-$750 billion will be spent in the next five to seven years within this space. It just totally envelops all of the investment that you might look at within an R&M side of the business. The NGL side is a very parallel business to Rich's refining and to the transportation and logistics side of our business. We thought this made great sense and gives us this platform.
Now we not only have the credibility and the strength of our drop-down story, we also have this tremendous organic and large CapEx opportunities going forward. We've stated very clearly we have $1.6 billion of drop-down inventory. We now expect, as we rolled out this transaction early on, we said we didn't think we were going to need to do any drop-downs probably until late 2017, 2018. We now expect that just due to the changes in the marketplace, that within the first half of 2016, we will have the marine drop. We had talked about that in the past, we put it on hold. We'll have the marine drop. I know Tim and Nancy are going to talk about the financing of that when they get into their presentation.
In total, we believe the $1.6 billion of EBITDA equates somewhere to a $13 billion-$16 billion of gross proceeds back to MPC. All in all, I've been very careful not to talk about what we think the overall value of this transaction is back to MPC throughout this acquisition, we believe that being very conservative in our valuation, that MPLX can contribute $30-$56 per share incrementally to MPC from this transaction. In summary, before I turn it over to Don, we're going to drive our top-tier financial performance through our fully integrated system, continue to strategically locate our assets. We don't try to step out of bounds and go to states where we don't have contiguous assets. We will continue the strength that is illustrated here with the MarkWest assets included, with our refineries, with all of our marine.
We'll continue to be a vertically integrated company that will capture margin wherever the margin is on that particular day. We expect to have sustained performance and a relentless pursuit of execution. When Tony comes up and talks about the Speedway side of our business, you will note that we've already re-identified 1,050 of the Hess stores that we purchased. When we first put this transaction together, we thought it would take about 3 years to get this done. That's the relentless execution, whether it's a turnaround, building a big project in refining, building a pipeline, a terminal, executing on Speedway. Our relentless goal is to always outperform on the timeline scale and on the budget scale as well. As I turn this over to Don, who's going to give you the macro outlook, and then Rich will review refining and Tony, Speedway.
I've asked Pam and Frank and Nancy to talk about MPLX and MarkWest. Just bear with us. We just announced the transaction a day or so ago. Pam's going to review the front end, talk about the organic projects, and the drop-down story we have within MPLX. Frank will come up and give you a very detailed overview of MarkWest and how that will fold in with both the organic and large cap drop-downs that we have going forward. Lastly, Nancy will review the financial side, and then Tim will close it up by reviewing the financials of all of MPC. With that, I'll turn it over to Don.
Good morning. It's great to be with you this morning. For the next several minutes, I will review our perspective on the macro environment. As we look forward, we view this being a very positive time for MPC and MPLX, and that belief is supported by a number of factors. First, while we think we'll be in a lower for longer crude price environment, and there will be a real downward pressure on the upstream companies, we are really a margin business. Flat price to us does not impact us in the same way that it impacts the upstream companies. We're very confident in our ability to deliver on the margin side. Second, we believe domestic downstream companies will continue to have access to price advantage crudes, and this is largely a function of the resilience of the shale producers.
Third, our lower feedstock and natural gas price advantage is going to continue to allow us to be able to access the export market and to be able to play in a very significant way there. Finally, the growth in natural gas and NGL production will create significant infrastructure opportunities, and we'll talk about some of those infrastructure opportunities. We plan to participate in a very meaningful way in those infrastructure build-out opportunities. While the lower price environment should be supportive of demand, we think at least in the short term and the near term, that a lot of the rebalancing is going to come on the supply side. The slowing down of investment on the supply side is going to reduce production somewhat, and that's going to aid, if you will, in the rebalancing.
This slide summarizes some of our views on the near to midterm on key commodity prices and differentials. While we believe that we'll be in a lower for longer price environment for some period of time, we do think that over 2016 and leading into 2017, the flat price environment will continue to rise and will be at the higher end of the crude price and NGL price ranges that we're showing on these slides. In the current price environment, the impact on various industries and participants are going to vary. We think on the midstream side, there will be some interesting opportunities, particularly if you're located in the more prolific or more price-advantaged regions. We think Utica and Marcellus are going to continue to outperform, and that's a great place to be in the long term.
We also expect that refiners will have upside as the lower prices stimulate demand. This is particularly true in the near term for gasoline demand, in our view. The next couple slides that we'll be showing here will illustrate that while we're in a lower price environment and that lower price environment has impacted drilling activity, the producers have proven to be quite resilient. We've seen production growth slow in some regions, but long term, we still expect that this growth will continue. That's especially true, as I said, in some of the more prolific areas like the Utica and the Marcellus. As you can see from this slide, the producers have become more efficient in terms of what they do for the dollars that they spend.
In addition to benefiting from lower costs, the producers are seeing increased production per well, it's really these efficiencies that are helping them or reducing the breakevens for them. It's one of the reasons why we haven't really seen a dramatic fall off in production, even though you've seen rig counts go down and you've seen the amount of capital that's being invested decrease. This slide gives our perspective on world liquids demand for the next 10 years or so. We've consistently indicated that we believe that both gasoline and diesel demand will increase over the long term globally. We do believe that distillate demand will outpace the gasoline demand over the long term. This slide looks at the domestic demand.
What you see here, over the long term, we believe that domestic gasoline demand will decline modestly, and some of that's going to occur really as a function of the CAFE standards. Any decline in the gasoline demand from the CAFE standards, we think will be more than offset by our opportunities in the export market. We do believe that distillate demand will continue to be strong going forward in the U.S. Gary Heminger has mentioned a number of times that we believe that octane will become more valuable as we go forward. We hold this view for a number of reasons. First, it's the increased use of lighter shale crudes we believe is impacting the need for octane. First, there's been an increased production of naphtha, that's really led to an increased need to do incremental blending to produce finished gasoline.
In addition, some of these shale crudes are providing sort of a lower reformer feed, and so we have an incremental increase for octane there. Thirdly, we think that U.S. auto manufacturers, as they're trying to meet the CAFE standards, are likely to be investing in more higher compression engines. Once again, we think that will create some incremental demand for octane. In light of this octane demand and our view around this, we are evaluating a project, the construction of an alkylation plant, and Frank, in his comments around the midstream, will talk a little bit more about that opportunity, but we're very excited about that opportunity. We've consistently articulated that we believe U.S. refiners, and particularly MPC, will have a sustained export advantage going into the future, and nothing has changed our view around that perspective.
Our access to price-advantaged crudes and lower natural gas price gives us a lot of confidence that we will be a major player in the export market going forward. As a result of the cost advantage I just mentioned, growing our exports has been a high priority for us. As you can see over the last several years, we've been very successful in doing that. In fact, through the third quarter of 2015, we've been averaging about 315,000 barrels a day of exported product. Similar to the crude story, we believe that natural gas production growth will continue well into the future. The primary driver of that growth is going to come from the shale plays.
We don't believe that all shale plays are created equal, however, there will be certain regions that we think will benefit in a more meaningful way from this growth, and we think Utica and Marcellus are two of those regions. We also expect that NGL volume growth will be very significant. As we've seen the last several years, NGL production has significantly outpaced the midstream or infrastructure growth. The result is that the netbacks to producers have been much lower than they might have been had there been sufficient processing, gathering, or export or takeaway capacity. A great example of the changing NGL trade flows is in the Northeast. The map on the left-hand side illustrates what the Northeast looked like or has historically looked like, and they've been really an importer of NGLs.
Going forward, there's no doubt in our mind that the Northeast will become a significant exporter of NGLs, and Utica and Marcellus are going to be one of the key drivers in this paradigm shift. This creates some very interesting investment opportunities in the near to midterm, we expect to and are intending to participate very meaningfully in those opportunities. As I wrap up my comments, I wanted to summarize what we believe the macro environment means to MPC and to MPLX. We're well positioned to perform through all the business cycles. Our integrated business model has served us well historically, we're very confident that it will continue to do so going forward. Our refining system will continue to benefit from price-advantaged crudes, lower natural gas costs, the ability to access, in a meaningful way, the export market.
The combination of MPLX with a very strong sponsor will create significant investment opportunities now and well into the future. With that, I'll turn it over to Rich Bedell.
Thanks, Tom. This morning, I'll be briefing you on how we're adding value by increasing margins and reducing operating costs through our capital investment and self-help programs. I'll also give you an update on the Galveston Bay refinery and how it's performing. I'll show you our plans to combine the Galveston Bay and Texas City refineries into what I would call a world-class refining complex. First, let me start off by giving you an update on the performance of some of the projects that we introduced back in 2013. These projects were the condensate splitters at Catlettsburg and Canton. They were the hydrocracker projects at Garyville and Galveston Bay, and then our export expansion projects. As you can see, these projects have exceeded their original projections and have returned almost $900 million in EBITDA already.
In the future, we expect them to continue to provide at a rate of about $600 million per year in EBITDA. We also have very strong self-help programs in our refineries to increase margins through process improvements. These are the type of projects that earn high returns very quickly and require little or no investment. Since 2012, we've captured over $800 million in improvements. Almost half of these come from Galveston Bay refinery which has really proven to be a very fertile ground for our operating and engineering teams to find these improvements. I'll show you some additional detail around Galveston Bay's improvements in a couple of slides later. Here we go. As you recall, we added Galveston Bay refinery to our system in 2013. Since then, our employees have done a remarkable job. As you can see here, we've increased throughputs, and we've set new production records there.
We've improved the environmental performance, and we've achieved a top quartile safety performance. Of particular note is the improvement on the on-stream reliability. One way to look at reliability is to look at the measure of the lost production capacity for mechanical and operating problems. As you can see in the chart in the upper right-hand corner, reliability as measured by this lost capacity has improved from about 5% to it's now under 2%, and it's approaching the performance of our other refineries. We've also been focused on improving the financial performance of Galveston Bay by not only capturing the synergies within our refining system, but also optimizing, debottlenecking the process unit, upgrading the catalysts, upgrading the technology, and reducing operating costs. As you saw on the previous slide, we've achieved margin improvements of over $300 million this year.
By 2019, we expect that to be over $600 million per year compared to 2012. Some of the improvements come from rationalizing the configurations of the Galveston Bay and Texas City refineries. Inefficient units are going to start being shut down, first with the Cat Cracker 1 at Galveston Bay in 2016. We'll follow that up in 2017. We'll be shutting down the Texas City boilers as we interconnect the steam utility system between the two refineries. In 2019, we will shut down the Texas City reformer and aromatics units. These changes, along with the new project we call the South Texas Asset Repositioning project, or STAR, will combine these two refineries into a world-class facility. Let me introduce STAR. Earlier, I've already talked about how well Galveston Bay refinery has been performing.
Reliability's improving, we're setting new production records, our safety and environmental compliance is improving, and our operating costs are coming down. While we've been working on all this, we haven't lost sight, and we've been really focused on what's the ultimate goal for this refinery. How can we make it achieve its ultimate potential? We found significant opportunities to improve the refinery's profitability through a series of projects, not a single project. The four major areas I've listed here. It starts with resid processing, where we will increase our resid processing by upgrading the technology on the resid hydrocracker and expanding it from 70,000 barrels a day to 90,000 barrels a day. We also have a solvent deasphalter at Galveston Bay that we will improve the recovery and expand it also to recover more gas oil from the resid.
The heavy crude unit in Galveston Bay we'll revamp, which will increase the distillate and gas oil recovery from the crudes, and again, about 40,000 barrels a day of capacity. A new ULSD hydrotreater will be built to enable the combined Galveston Bay and Texas City refineries to produce 100% ULSD and ULSK. Finally, as I mentioned before, the refineries will be fully integrated. That's including tankage, blending, utilities, and logistics. After all phases of the STAR project are complete in 2020, it'll contribute $700 million per year in EBITDA. It's important to realize that this is a multi-phase project. It'll start earning money in 2016. In fact, through 2016 to 2019, as we bring in the first phases, it'll be returning about $100 million in EBITDA a year. Then by 2021, first full year of production will be over $700 million.
Overall, it's a 26% ROI project at a $2 billion investment. Here's what the complex will look like when we get done. A crude capacity of 585,000 barrels a day will make it the second-largest U.S. refinery. Along with Garyville, we'll be having two very robust, world-class, world-scale refineries on the Gulf Coast. This refinery will have significant hydrocracking and catalytic cracking capacity. It'll produce 100% ULSD, and it'll have the capability of exporting large volumes of light products. Switching to look at our overall system. ULSD demand, we've talked about, we see it as a growth area, not only in the U.S., but also worldwide. This slide illustrates that our refining system is well positioned to compete in this market. When we look at our position in distillate hydrotreating, it's important to note that there's distillate hydrotreating, and there's deep distillate hydrotreating.
You need the deep distillate hydrotreating to produce ULSD. five of our seven refineries already produce 100% ULSD. When we finish the STAR project, 100% of our capability will be ultra-low sulfur diesel. I think that's a differentiation for our refining system. That market continues to provide a premium market, especially for Galveston Bay and Garyville. Earlier this year, a project to expand Garyville's gasoline export capacity was completed. We're in the process of completing a project at Galveston Bay to increase the distillate export capacity. By 2018, Galveston Bay's gasoline export capacity will increase by another 115,000 barrels a day. This gives us a great ability to expand our markets and also to optimize the pipeline and marine shipments out of Galveston Bay and Garyville. We have got a great portfolio of margin improvement projects throughout our refining system.
On this slide, I've just highlighted a couple of them. We have two Cat Cracker projects, one at Garyville and one at Detroit. These are excellent examples of how we can continue to extract more value out of our existing assets. Both of these are designed to create more high-value products, Alkylate, propylene, butanes. Combined, they'll add another $130 million to our EBITDA with an investment of $360 million. Looking forward to our future growth. You can see we have an outstanding portfolio of projects that provide an excellent platform. As you see here, by 2020, the STAR, the Cat Cracker, and other refining projects will increase our EBITDA by $1 billion a year on an investment of less than $3 billion. Our investment in our refinery growth projects will typically achieve a simple payback in three years.
As you can see here, we will continue to provide these type of high returns to Marathon Petroleum. Now I'd like to introduce Tony Kenny, President of Speedway.
Switch. Thanks, Rich. Good morning. I'm pleased to have this opportunity to tell you about Speedway, the company-owned and operated retail business of MPC. We have been very consistent about our strategy to grow this stable cash flow segment of our business. Speedway plans to continue to be a top-tier performer in the industry. We will focus on three main growth platforms. First, organic growth in both convenience stores and commercial fueling locations. Secondly, we will pursue quality c-store acquisitions. Finally, we will build upon the new asset base established with our acquired locations in 2014. Throughout my presentation, I'll refer to acquired locations to reference the Hess acquisition that we closed on September 30th, 2014. From an overall performance standpoint, Speedway is either number one or number two in key metrics compared to our public peers in the industry.
The top graph here shows EBITDA per store per month. This is one of the most important metrics in our business. Our success in achieving this level of performance and to extend this performance across all 2,760 Speedway locations is key to delivering stable and growing cash flow for our segment. There are four main components of EBITDA per store. The first one is gross margin contribution from fuel sales and merchandise sales, which is shown at the bottom of this chart. Speedway's margin mix is currently 53% from merchandise sales, which is shown in the pink, and 47% from light product sales, which is shown in the red. Prior to the acquisition of the acquired locations, Speedway's mix was 65% merchandise margin and 35% light product margins.
As we focus on in-store growth at our acquired locations, our goal is to get back to a two-third merchandise, one-third light product margin mix. An important point here is that activities inside of our stores are more predictable and consistent and therefore provide a foundation for stable cash flow, unlike the volatility that we experience from time to time in light product margins due to less predictable crude and product markets. Growing light product volume and merchandise sales are fundamental to driving EBITDA. As you can see, Speedway ranks number two in both of these metrics versus our peers. The other key driver of EBITDA is operating and G&A expense performance. Several companies did not provide enough information in their public data for us to show you their numbers.
What is important here is to note that Speedway is a very cost-control-conscious company, as reflected in us being number one in EBITDA per store overall, but number two in gross margin. The difference is Speedway's lower cost structure per store than our nearest competitors. We plan to maintain our discipline to be a low-cost operator, leveraging the technology investments we have made across our 2,760-store network. In 2011, we began emphasizing our strategy to grow our retail business through organic projects and acquisitions. We plan to continue that strategy. We have a very strong 2015 capital program of $250 million, which includes $292 million that we will spend at the acquired locations, primarily for store conversions and remodels.
As capital for the acquired locations moderates through 2017, we would be looking at roughly a run rate of $400 million per year to execute the growth strategy of our program. The categories of Speedway capital projects generally fall in four major areas, as shown at the bottom of this slide. I've also shown the historical expected returns for these projects. We have a very strong backlog of projects expected to deliver these same type of returns through the 2016 through 2018 period. We'll continue to build new stores and rebuild stores in existing markets. The new builds have averaged 18% rate of return. The rebuilds have averaged 21%. In 2013, we embarked on an expansion into two new contiguous markets in western Pennsylvania and in Tennessee. We will continue to expand in these markets and expect to have 120 stores complete by 2020.
Additionally, with the acquired locations in 2014, we have identified several new areas of opportunity, especially in some very good metro markets in Georgia, South Carolina, and the panhandle of Florida. What is encouraging, though, if you look across the 22-state Speedway marketing territory, there are still several voids in the geography that will continue to provide organic growth opportunities complementary to MPC's refining and distribution network. Looking at the future growth in diesel demand, trucking will remain a dominant mode of freight transportation in the U.S. The American Trucking Associations forecasts that freight volumes will increase by nearly 29% over the next 10 years, and at the same time, the number of trucks on the road will grow from 3.6 million to nearly 4 million.
Speedway is executing a strategy to take advantage of this expected growth in diesel demand and provide additional assured sales for MPC's increasing diesel production from their refineries. To capture this expected growth, we are building out a commercial fueling lane, or CFL network. CFL is an extension of our existing c-stores, where we build or add anywhere from two to five truck lanes on the backside of the store. These locations are typically interstate locations situated on large properties to accommodate the 18-wheel truck traffic without interfering with the c-store and auto traffic. Over the last three years, we have built 53 CFLs throughout the Midwest, and these have been some of our very best projects, with returns averaging about 23%. Another growth platform we will continue to pursue is selective high-quality acquisitions.
The convenience store industry remains highly fragmented, with over 74% of the industry's 153,000 convenience stores being owned by companies with 50 stores or less, and the majority of those being single-store operators. These smaller operators will continue to be challenged as they lack the scale to face the increasing costs facing our industry. Our intent is to pursue acquisitions that are synergistic to MPC's refining, supply, and logistics footprint. As we have said many times, we capture additional value from refining through retail from our fully integrated downstream system. When you look at this map and add 2,760 Speedway locations, you can see how they complement MPC's network. The Speedway locations, along with the Marathon brand locations, provide an assured outlet of roughly 70% of MPC's production of gasoline.
The synergies realized with 70% assured and ratable sales are meaningful when you consider the efficiencies in scheduling pipeline movements and the optimization of terminal and transport operations. Additionally, we can capture higher sales and margin opportunities due to occasional supply dislocations in markets, given the flexibility to move Speedway and Marathon brand demand to other terminals. In turning to our third growth platform, our acquisition of new locations that we closed September 30th, 2014, I want to remind you what we told the market when we announced that transaction. We said we would spend $570 million through 2017 for the conversion of 1,245 stores, for the remodeling of approximately 700 stores, and for the annual maintenance capital for those locations. Additionally, we forecasted we would achieve $190 million of synergies and generate $365 million of EBITDA from the acquired stores by the end of 2017.
The conversions and remodels of stores are progressing very well. We are ahead of schedule and under budget. To date, we have converted 1,052 of the 1,245 stores, or 85%, to the Speedway brand. Store remodels are also progressing ahead of schedule. To date, we have 228 complete, with 48 currently under construction. The remodels essentially provide the foundation to capture the marketing enhancements or incremental sales and margin synergies that we expect from these locations. These projects will average approximately an 18% rate of return. Let me tell you how far we've come in a little over one year. From day one, our employees have been working together, focusing on providing an exceptional customer experience and creating an environment to capture the synergies of bringing these outstanding assets into the fold.
As we reported on MPC's third quarter earnings call, we have doubled the synergies expected for our first 12 months of operations. Three main areas of synergies are operating and G&A expense reductions, light product supply and logistics benefits, and the marketing enhancements. Most of the synergies to date have come in the first two areas, expense reductions and light product supply benefits. Many of the synergies that we captured in 2015 are repeatable, as reflected in our expectations for increases in 2016 and 2017. Most of the increase from the current level to the $225 million that we now expect in 2017 will come from the marketing enhancements related to the 700 remodel projects that I mentioned earlier. The acquisition has significantly exceeded our expectations in virtually every area. The conversions, remodels, synergy capture are well ahead of schedule.
The team and culture of 36,000 Speedway employees are coming together as one company with one vision. We've implemented more than half of over 400 best practices that we identified very early on in our planning process. Most importantly, we have exceeded expectations for overall financial performance. The right side of this graph shows the original forecast we made to achieve $365 million of EBITDA in 2017. Expectations were to grow EBITDA to $250 million during the first 12 months. As you can see, we have surpassed that goal and have essentially met the 2017 objective two years early. To summarize, Speedway is a top performer in the convenience store industry, and we expect to maintain that top-tier position throughout the execution of our 3-tier growth strategy.
First, we will grow through organic expansion in new and existing markets, along with the build-out of a commercial fueling lane network. We will continue the pursuit of quality acquisitions that are complementary to MPC's refining and distribution system. Thirdly, we will continue to build upon the attractive growth platform established with the acquired assets. We have an excellent strategy in place with a significant number of high rate of return projects identified for 2016 and future years. Speedway is in a great position to continue to deliver growing and stable cash flow beyond $1 billion per year for the years ahead. Now I'd like to introduce Pam Beale.
Well, good morning. As we move through the presentation, I think you'll agree how exciting our MarkWest and MPLX combination is. MPLX is an important part of MPC's strategy to grow its higher valued and more stable cash flow businesses. MPC's interests and those of the partnership are very closely aligned, and you'll see that as we go through the presentation. Today, MPLX is primarily serving MPC's extensive crude oil refining and refined product marketing operations. With its large balance sheet and investment-grade credit profile, MPC is committed to growing MPLX and has many ways to support the partnership, including a very large and growing inventory of dropdowns. MarkWest, on the other hand, is primarily focused on natural gas and natural gas liquids gathering, processing, and fractionation.
This positions the partnership to participate in growth all across the hydrocarbon value chain, from crude oil and refined products to natural gas and natural gas liquids. The MarkWest team is respected for its deep producer relationships, operational excellence, and commercial expertise. It has a strong leadership team with a demonstrated track record of identifying, developing, and executing large organic growth programs. MarkWest has the right assets in the right locations in some of the most attractive shale plays in the country, and it has a very large backlog of organic growth prospects. Its ability to pursue these opportunities, we believe, is significantly enhanced through its combination with MPLX. These assets, as you'll see, are in strategic geographic areas to MPC and MPLX. On this slide, you see the notable overlap of our geographic assets and operations.
This will create many natural advantages as the logistics and processing capabilities continue to be built out in this area of the country. In particular, the MarkWest leading position in the prolific Marcellus and Utica shale plays significantly complements and creates strategic opportunities for MPC's refining and MPLX logistics assets in the same geographic footprint. We each bring attractive platforms with experienced leadership teams, and together, we believe we have extraordinary growth opportunities with multiple avenues to grow distributable cash flow. Here are the numbers. Beyond the MarkWest current backlog of organic growth, we see significant incremental opportunities that double the organic growth potential. Our teams continue to work very closely together on a variety of projects in the Utica and Marcellus to leverage our respective capabilities and to pursue some very natural commercial synergies.
An important benefit of these opportunities, we believe, is the enhanced capabilities of MarkWest to meet the needs of its producer customers by pursuing projects that create in-basin demand for natural gas liquids, which we'll talk about, transportation solutions that open new markets for the producer's products, and developing Mont Belvieu-like capabilities in the Northeast with storage, processing, transportation, and export capability. Developing this type of infrastructure will support producers' needs and the future development of the Northeast shale plays. These opportunities also capitalize on our growing demand for high-octane value gasoline blending components, as well as MPC's desire to move its refined products further east to supply the growing Speedway fuels distribution business on the Eastern Seaboard.
While most of the growth capital is focused on the Northeast, we're also exploring opportunities to capitalize on the MarkWest operations in the Southwest near MPC's refining centers along the Texas Gulf Coast. The MarkWest merger with MPLX creates a tremendous platform with a compelling growth story over an extended period of time. The ability to grow distributions for unit holders is underpinned by this extraordinary set that totals $27 billion-$33 billion. MPC has a large and growing inventory of dropdowns with an estimated value of $13 billion-$16 billion, roughly half of the total identified investment opportunity. This is augmented by a growing organic investment portfolio at MPLX over the next three years, which totals $800 million. MarkWest has a very significant capital investment plan of $7.5 billion or $1.5 billion per year on average over the next five years.
Together, we have identified incremental opportunities that we're pursuing of $6 billion-$9 billion. We're pursuing these opportunities jointly between MarkWest, MPLX, and MPC, and we'll leverage our respective expertise and pursue these commercial synergies at a lower cost of capital with support from MPC. You've asked for more details about the $6 billion-$9 billion of incremental investment opportunities, and Frank Semple is going to cover that for you in a few minutes. MPC's financial strength provides the partnership with the ability to incubate the growth projects at MPC, which can cure some of the timing challenges of a standalone partnership, and it continues to build that growing backlog of dropdown opportunities.
When you combine the MPC inventory of dropdowns with the MarkWest organic backlog, along with the incremental joint investment opportunities we've identified, you can see why we're so excited about the prospects long term for this partnership. These investment opportunities, we estimate, will generate approximately $4 billion-$5 billion of EBITDA. Our mid-20% distribution growth guidance through 2019 is driven by the MarkWest strong organic backlog and MPC's substantial inventory of dropdowns, providing a very clear line of sight for that growth. MPC's vast operations are supported by substantial logistics that constitute this large inventory of assets that could be dropped down in the future. In addition, MPC continues to allocate growth capital, which you've already seen, to midstream investments, increasing the portfolio of dropdowns. I want to highlight just a couple.
In the pipeline section, you'll see the last bullet is the Sandpiper pipeline project that will move Bakken crude into Patoka, Illinois. MPC's share of this project is $1.2 billion. When complete and generating positive cash, MPC's investment will be a candidate to be dropped down into MPLX. Another example, in the marine section, you'll see in the last bullet, the recently announced joint venture for oceangoing vessels. Most of these will move finished products from MPC's refineries to the coastal markets. This was 100% chartered to third parties. MPC's joint venture grows the opportunity of future drop-downs, and it creates the opportunity to move a portion of this service from third parties into MPLX over time. There are many growth opportunities for MPLX to meet MPC's changing logistics needs as it seeks better access to the U.S. shale production from oil and gas.
The expansion of MPC's refining and marketing operations and footprint is another source of significant opportunity for investment for MPLX. MPC's recent acquisition of Galveston Bay Refinery and its retail expansion along the eastern seaboard both provide opportunities for organic investments, bolt-on asset acquisitions, expanding existing services, and replacing services that are currently provided by third parties. The $800 million of MPLX legacy investments through 2018 will generate approximately $125 million. These investments include adding new storage capacity for crude and natural gas liquids at MPC refineries, the Cornerstone Pipeline, and the Utica build-out projects. Cornerstone, as its name implies, is the building block for other projects that will become a critical solution for the industry to move condensate and natural gas liquids out of the Utica region into refining centers in Northwest Ohio and connect to pipelines that will take diluent to Canada.
Cornerstone will be operational at the end of 2016, and the build-out projects will come online through 2017. The combined partnership has significant growth opportunities as the company will have operations that span across the hydrocarbon value chain from crude and condensate to natural gas and natural gas liquids. The volume of production expected from the Utica and Marcellus will continue to grow significantly over the next decade, creating many opportunities to meet the infrastructure needs for the producers and to connect the wellhead to the downstream markets and ultimately to global markets. It will also involve generating or converting these natural gas liquids into higher valued products and moving these along with other NGLs and refined products to the East Coast and to global markets. That's more easily done by leveraging the collective strengths of MPLX, MarkWest, and MPC.
I'll turn the podium over now to Frank Semple to talk about the MarkWest side of the business and those significant joint opportunities that we've identified.
Thanks, Pam. We made it. I know this has been a long and arduous transaction process, but we're just kind of proud to be here. The reality is that Don and Pam have done a great job of providing a lead-in to the MarkWest story. Nancy and I are going to try to kind of provide a little bit of meat on the bone here. We'll do a little bit of a tag team act, but I'll start with just a little bit of information around kind of the vision that drove this merger opportunity and a little bit about our execution, particularly around some of the commercial opportunities. Then Nancy will take on the heavy lifting.
She'll talk about how we think about economics, our balance sheet, and probably most importantly, the durability of this large cap, high growth MLP model that Gary talked about earlier, and the sustainability given the GP and the IDR structure. That's really important to understand. I think that'll be a good lead-in to the Q&A, hopefully. I look forward to meeting all of you that I don't recognize in the room. Again, we look forward to getting these two companies put together and executing on our operational, our commercial, and our financial objectives that you've heard so much about today.
This slide is a little bit arcane, what you need to remember, for those of you that don't know MarkWest very well, is that our customer-focused, our customer-centric model has always been based around understanding the producer customer's business and helping them connect the dots between high performance resource plays and the downstream markets. Traditionally, that has been building for us, building midstream assets, building, gathering, processing, compression, fractionation capabilities for our producer customers, fully integrated capabilities, and then helping them find the best downstream markets for their gas and their liquids. With this merger, with this combination with MPLX and the support from Marathon, it opens up a whole new set of opportunities. As Don mentioned, a lot of downstream natural gas liquids-driven projects that frankly, on a standalone basis MarkWest could not handle on their own.
It's really important for us, as I'll talk about in a few minutes, for us to continue to enhance value for the producers' liquids and their gas. Having a partner like Marathon, combining us with MPLX just makes a lot of sense from the standpoint of controlling our own destiny, driving additional value through these downstream markets. Our foundation of our success has been, you've heard it this morning several times, the foundation of our success at MarkWest has really been around the quality of our operations, our execution, our capabilities from a midstream standpoint.
It's really amazing to think about the fact that we're now, because of the 7 Bcf a day of processing capacity, the approximately 400,000 barrels a day of fractionation capacity operating at 75%-80% utilization, we are now the number 2 largest processor in the U.S., that's happened really just over the course of the last 5 years or so. We're the number 4 fractionator in the U.S., which is simply amazing, and the thought that we are now producing 10% of all the natural gas liquids in the U.S. is quite amazing. Really the foundation for us has been execution. It's been having this fully integrated platform in all the areas that we operate in order to drive the commercial services and the operational capability that's so important in supporting these resource plays. It's just a different animal than the traditional oil and gas industry.
The majority of our CapEx over the last several years has really been driven by the Marcellus and the Utica. You're going to hear that quite a bit. The fact is that the opportunities in the industry today are around the best economic plays in the U.S., and we're fortunate to be partnering with our producer customers in some of the best, most economic plays in the U.S. That just didn't happen by happenstance. As I mentioned earlier, understanding our customers' business really includes the technical data that underlies their acreage positions, understanding the basic economics that are the foundation for their drilling programs. Having that insider information allows us to focus on the best rock in the business to be able to focus our investments in the best areas.
Again, 75% of our operating income, as indicated on the slide, really comes from the Marcellus and Utica, but don't forget about what's going on down in Oklahoma and Texas, where we have a number of really great assets that are also driving a lot of growth. We are stepping out into other areas like the Permian that's going to create more and more opportunities, again, based around the relationships with our customers and our ability to continue to execute on this high performance fully integrated midstream strategy. Again, the majority of our investments have been in the Marcellus and Utica. Simply stated, the Marcellus and Utica is the fastest growing, most economic set of shale plays in the U.S. All of the rest of the U.S., as you see on this slide, is really flattening out.
The Marcellus and the Utica, even in this commodity price environment, is growing at 15%-20%. We're in the right place. Marcellus is, according to Bentek, producing right now 20% of the total U.S. gas supply. Those two plays have really only been around for the last eight or nine years. That's quite amazing when you think about that. Projections are again from Bentek and EIA that in 2025, 25% of all natural gas liquids will be delivered out of these Northeast shales. Before I step into some of the discussions around the projects, I could spend a lot of time talking about how critical our customer-focused culture has been on our business. It's something that we think about all the time. We think that it has been a big part of who we are as a company and a big part of our success.
The fact is that the easiest way to think about this is that we have finished number one in the industry in total customer satisfaction in the midstream industry every year that the Bentek survey has been conducted. That's a very tall order and gets harder and harder. It's a very competitive industry out there, that kind of performance and those relationships have been so critical to who we are as a company. I believe this merger will enhance that. You've heard a lot about, and most of you know a lot about Marathon, MPLX and their culture, their focus on the people, the customer, the execution. It's going to make us stronger as a company. Fundamentally, we've got to retain that type of can-do attitude and that type of performance for our customers in order to be successful, and we will.
Just shifting gears here before I turn it over to Nancy, I want to touch on just really a little bit about the commercial process that we use for developing projects and talk about a few specific projects. I thought Pam did a great job of kind of giving the high level. If you think about MarkWest, really we're kind of additive to the fundamental growth areas that Pam discussed. The significant drop-down inventory coming from MPC and growing, the organic growth from MPLX, great foundation for growth. MarkWest really adds a bit of a new dimension for MPLX in that we have a significant portfolio of organic growth opportunities. Again, that's driven by our positions in all of our areas of operation, but primarily coming out of the Marcellus in the Utica, 7.5, that's simply $1.5 billion a year of CapEx.
We're going to be a little bit light in 2016 because of the current commodity price environment. As the commodity price environment does pick up in 2017, we expect to ramp back up. We have good visibility into the acreage dedications from the producer customers, their drilling programs, and our business is very much volume driven. We're largely fee-based. 90% of our operating margin comes from fee-based contracts, and we've got really good line of sight in terms of the producers' economics and their drilling programs to support this kind of organic growth. We've done it historically, and we expect to see that kind of growth in the future. These are all around gathering, compression, processing, and fractionation projects. The second big bucket of capital, again, Pam mentioned this, is really these downstream projects that are incremental to our organic growth projects.
These are step outs out of our core operating area from a gathering processing fractionation perspective. These are downstream NGL projects that we have really good line of sight on. Don, Jay Hentschel, Randy Nickerson, who I know a lot of you know, they have been working together for really the last year, developing concepts, developing perspectives, developing engineering estimates around many of these projects. There's a lot of work that's already gone into defining these projects. They are real. They have great possibilities. Like I said, we've got a combined team of commercial developers and engineers that are working on all of these opportunities. If you think about that list, really, I've picked out four of those projects that I think gives you a little bit of an understanding about the scope and scale of these opportunities.
The first was mentioned earlier, and this is the Butane to Alkylate project. Again, it's a great example of how we are learning with our producer customers in terms of how the markets are developing primarily out of the Northeast. The genesis of this project really is about a year ago, as we were talking to some of our producer customers that have been looking at taking their product in kind, their NGLs in kind, and reaching new markets, particularly out of the East Coast. We were talking to some of the traders and marketers that really manage a lot of the physical volumes out of New York Harbor, and it became pretty obvious that we are really short motor fuel blending stock in the Northeast. Now, Marathon, this is kind of fundamentally, this is the world they live in.
As we started thinking about projects that may be able to take advantage of that, really that was one of the first projects. This has been one of the first projects that really we started working together with Marathon on. It's just a natural opportunity when you think about the fact that we're about 500,000 barrels short of those components in the Northeast today. The key is how do you get physically those barrels produced and moved into the right market, i.e., on the East Coast, PADD 1, New York Harbor. Huge opportunity. It's a technical challenge. It's an engineering challenge, but it's a great project. A lot of margin here to work with because of the upgrades driven by the new standards and regulations coming out. Alkylate is just a kind of a magic elixir.
It really is a very, very valuable blending stock that drives the octane that is so critical to today's automobile engines. This is about a $2 billion project. It's a long-term project. This is a project that would be likely financed at the MPC level and ultimately owned by MPLX. Again, a great project. We're well down the road. Again, this is a project that we've talked about publicly. It is still in the development stage. Another project, again, we've talked about publicly has been a NGL logistics project.
The fact is that Northeast NGLs in addition to developing in-basin Northeast Midwest projects like the Alkylate projects, like PDH, BDH type projects, the fact is that in order to keep the Northeast in balance overall, particularly because of the cyclical nature, weather-driven nature of propane demand, it's really important that we also have additional export options out of the Northeast. You just cannot keep the Northeast in balance. The Alkylate project is a butane project. Essentially, the feed on that would be about 35,000 to 40,000 barrels a day of butane, producing about 20,000 barrels a day of Alkylate. It helps. In order to keep the Northeast in balance, because of the quality of the reserves and the forecasted production ramp, it's really critical that we continue to evaluate additional pipeline projects, additional terminaling projects out of the Northeast.
This slide kind of gives you an array of projects that we've been working on with potential partners that would essentially be able to open up the Northeast to additional waterborne exports, either out of the Gulf Coast or the Northeast. The first is a light products, an NGL pipeline project, or potentially a rail project to the Northeast to a new terminal on the Delaware River or the Schuylkill River in Philadelphia. The second is a Centennial Pipeline project that essentially leverages the current ownership of the Centennial Pipeline owned by Marathon. That would be a part of the solution, getting those NGLs down to the Mont Belvieu market. The third is UMTP, which is a joint venture project that we've been discussing for the last couple of years actually with Kinder Morgan. That would essentially be now a purity product pipeline down to the Gulf Coast.
All these projects are in various forms of development. Stay tuned. This is not a question of if, it's a question of when. There are obviously other competing projects out there, such as the Sunoco Mariner East 2 and Mariner East 2X project that is out for open season today. Timing is critical. A lot of things happening with regard to discussions with producers and shippers on these projects. Likely because of the existing capabilities out of the Northeast from an NGL logistics standpoint, only one large project is going to be built. We think that one of these has a lot of possibilities. Again, we're doing a lot of work around both the operational and the commercial drivers for those projects. Another major project is our Rogersville Shale project.
I got to pick this up a little bit because we're going over time. Rogersville Shale, again, came to us. It's essentially kind of really a science project at this stage, a couple of our existing producer customers have come to us and provided us with information, provided us with their technical data around the Rogersville. It's real. It's there. It will be economic with better commodity prices in the future. Like I said, there's a lot of science going on right now. The cool thing about this is it sits right on top of our existing assets. We've got almost $600 million a day of processing capacity, an NGL pipeline. It's in the neighborhood of the Catlettsburg Refinery from an NGL demand standpoint. A lot of possibilities. This will be about a $1 billion-dollar opportunity.
Another, again, sort of a step-out project is our dry gas development in the Utica Shale. These dry gas wells in Utica are fantastic. They're highly prospective. As you probably read, a lot of the producers that have acreage both in the rich and dry gas Marcellus, as well as the Utica rich and dry gas areas, they are really looking hard during this period of time when NGL prices are low to exploit their dry gas acreage. Going forward, we will continue to expand our presence in both the dry Marcellus as well as the dry Utica. This project is really anchored by Ascent Resources. The plan is to build out for them pipeline compression to get them into the downstream pipelines really being developed and built into the Utica and the Marcellus, and then also build volumes through third-party opportunities.
A lot of words there, again, excited about the opportunity. Good to get to meet you. Look forward to your questions. With that kind of an intro, now I'll turn it over to Nancy, she can talk about how we're going to do all this stuff from a financing strategy and a balance sheet standpoint, also talk a little bit about how we're going to drive this model into the future. Nancy?
Thank you. Let's start with this slide and talk just a little bit about how our projects are evolving over time. We've talked a lot in the MarkWest model over many years about how our projects evolve. We've indicated they take about 12-18 months to construct and another 12-18 months to fill the plant, and at kind of full cycle economics, you get to about a seven multiple or so. These are typically mid-teens rate of return projects. All of that still continues. We anticipate many of the projects under MPLX in the very same paradigm, and what you'll see from this is what we've shown in the past. We've shown 13 and 14 run rates.
As we think about the CapEx from 2016 through 2020, at that same multiple, what you really see is an incremental $1 billion of EBITDA heading into cash flows over the next few years. Again, these projects are very real. This is a continuation of many of the infrastructure projects we've been driving for many years and additional projects on top of that, exactly as Frank has indicated. If we talk a little bit about distribution growth, this is really important. It's a concept we've talked a lot about over the term of the merger. We have given you distribution growth guidance out to 2019. Even with very much deteriorating market conditions, we have affirmed that guidance. Over time, both of these entities have independently provided great distribution growth to investors. We've provided a lot of overall value and increase in unit price.
What we're telling you today is on a combined entity basis, our commitment to the investors is nothing changed. We continue the same commitment. We've talked a lot about how we're going to get there, this guidance and this commitment to the distribution growth is very real, and we have a lot of ways to execute. Along those lines, MPC as a sponsor provides something that MarkWest has not historically enjoyed. There are so many ways that the sponsor can support this partnership. There's many levers that can be pulled. There's the balance sheet flexibility and the ability to incubate projects at the MPC level and drop them down. The ability to finance and grow the partnership development projects at the partnership level. There's supportive ways between IDR give backs and great multiples for the drops.
There's all of these tools that we have available. We're very excited about the opportunity to manage this portfolio of growth in many different ways. As Derek alluded to earlier, the midstream drop will happen in the first half of 2016. It's also very likely that MPC will take back units for that drop. Again, really easing the financing needs of the partnership over time. We're very excited about all the different ways we'll be able to finance the growth of the partnership and continue to deliver the value that we've indicated. From a balance sheet perspective, let's talk a little bit about the debt side of the equation. We're very committed to maintaining an investment-grade profile. We've had discussions with the rating agencies, that's been affirmed.
We will be slightly higher levered going into the first quarter of the merger. Then we've indicated our desire and our efforts around growth in EBITDA will be to decrease leverage over 2016 and get more to a 4 times level. We've also made it public that we are refinancing the MarkWest notes. Again, these are at very good terms. They're long tenor, so that's a great portfolio of debt for the partnership to inherit. Then we've also indicated over time, our target goal is a 1.1 times distribution coverage ratio. It's a very good opportunity set on nearly $20 billion of assets in the future. Moving forward, it's a great investment profile, and we think there's a lot of upside, just thinking about the credit and the balance sheet and financing aspects of this.
This slide, I think, is one of the most exciting points about the merger, is there's just really in the space, an undeniable correlation between distribution growth and yield. We think that this entity, between the growth opportunities, the financial flexibility of the balance sheet, the commercial synergies, the stability of cash flows, all of these different components really provide an opportunity to grow this entity in a different way. This is going to be a very unique entity in the marketplace. There's really nothing like it today. If you even think about how MPLX should trade versus its peers that are high-growth MLPs, there's lots of room to move down the regression line. But the mission here is very clear. We understand we need to continue to execute. We need to run this business very effectively, very efficiently, very safely.
We need to continue to provide a lot of value to our producer customers. We need to capitalize on the opportunities on the commercial side and create new ways to provide value in the downstream markets. All of these things combined are what it takes to take this entity from where it is today and increase the price, which is what all of us as investors want out of this entity, and move down that regression line and get to where we want to be, which is a large cap, high-growth MLP with superior returns and a long-term commitment to unitholders. That's what we're all about, and this team is incredibly committed to that mission. With that, I'll turn the podium over to Tim to talk a little bit about financing from an MPC perspective.
Thanks, Nancy. Well, let me try to bring much of this together financially and highlight the performance that we see resulting from this consolidated enterprise, as well as our intent to continue to manage the enterprise very carefully with the substantial growth in earnings and cash flows over time. The sum of the developments and initiatives that we talked about this morning have built a very powerful value proposition for MPC and its unitholders. A large and diverse asset base providing strong through-cycle earnings and cash generation. Very attractive investment opportunities across the entire enterprise, enhanced by the substantial growth opportunities that MarkWest provides with a combination of MPLX. A consistent and balanced approach to investing in the business and returning capital to shareholders, including a base dividend, as you saw earlier, that has grown by 31.5% compounded annual growth rate since the company spun.
The disciplined focus of returns on capital and the resource allocation across the business that results from that focus. The tremendous value that MPLX, as a partnership, represents to the MPC enterprise in total. MPC's business over time, and certainly over the time since the spun occurred four years ago, has produced very strong results and substantial value to shareholders. We expect this performance to be significantly enhanced going forward with the investments and priorities that we've laid out this morning. Working down the table on selected financial information, since 2011 through the third quarter of this year, we've generated in excess of $13 billion of net income and generated cash from operations of about $17.5 billion. These earnings have produced a return on capital, which has averaged almost 20% over this time period.
The balanced approach Gary alluded to earlier is evidenced by the strategic investments in the business of about $7.7 billion over these four-plus years, while at the same time providing a compounded growth rate of 31% of the base dividend, acquiring more than a quarter of the shares that were outstanding when the company spun in the middle of 2011, all while maintaining an investment-grade credit profile and strong liquidity position throughout that time period. This focus and strategic intent to maintain an investment-grade financial profile can be highlighted by a handful of the credit metrics shown here on slide 82.
If I can train your eyes to the left table at the bottom of the slide, you can see that as of the end of the third quarter, the $6.7 billion of debt represented less than a full turn of the $7.2 billion of EBITDA over the last 12 months and about a third of our book capitalization. The just over $2 billion of cash at the end of the quarter adds to the $2.5 billion of committed capacity on the parent revolver and the $800 million of capacity on the trade receivables facility to allow immediate access to $5.3 billion of liquidity. That provides through-cycle capability to manage, invest, and grow the earnings of the business.
The investments we've made in the business, including the $7.7 billion of organic investments and the strategic acquisitions we've pursued, which have included the completion of the Garyville major expansion in 2009, the completion of the Detroit heavy oil upgrade in 2012, acquisition of the Galveston Bay refinery in early 2013, acquisition of the Hess retail system in the fall of 2014, and effective tomorrow, the combination of MPLX and MarkWest. These actions and investments have built an asset configuration with ever-improving diversity and a cash generation capability that we expect to have through cycle stability and growth. This slide adjusts our historical annual EBITDA for the last seven years, as if our current configuration had existed in each of those years. A simple average of these hypothetical years produces an EBITDA stream in the $6 billion range, with substantial and numerous growth opportunities as we've highlighted this morning.
The opportunities to add to the mid-cycle earnings power of the business, as we've highlighted extensively this morning, are substantial. The roughly $2.5 billion per year we intend to invest in the business over these next five years creates incremental EBITDA on top of the mid-cycle earnings I just discussed of over $2.5 billion by 2020. You can see that the continuing investments in the core refining and marketing business, coupled with the substantial investments in MPLX on a combined basis, midstream and Speedway deliver an increasingly powerful earnings engine for the enterprise as we go forward. At the same time we'll be making these investments to drive the long-term earnings power of the business, we will remain focused on sharing in the success of the business and faithfully returning capital to our shareholders.
After we've covered the core liquidity requirements of the business, which I'll talk about in just a minute, our intent will be to continue returning 100% of free cash flow through cycle to investors. Our actions since the spin demonstrate this commitment very clearly with $9.1 billion of total capital returned compared to free cash flow generation after investment of about $7.7 billion. We recognize the importance of a strong growing dividend base to our investors. We also believe that share repurchases represent the most efficient means to return capital to shareholders and would expect to continue to buy our own shares for as long as the market trades well inside what we see as intrinsic value to the shares.
Importantly, we view consistent and meaningful return of capital as a fundamental element to the value proposition and a key commitment in the sacred trust we share with you, our investors. One of the key components to liquidity and capital allocation is the fundamental view that we have as to the amount of core liquidity necessary to support this business. The analysis on core liquidity tries to answer the question, how much liquidity is appropriate so that the business has an uninterrupted ability to pursue its strategic intents without ever being put in a compromised position or overly reliant on the market for that execution? This analysis is perpetual, but we want to provide a quick refresher on the elements we look at as the core baseline. The red bar on the left represents the $4.5 billion-$5.5 billion of combined total potential calls on liquidity.
It includes the ongoing cash requirements like maintenance capital, interest, and dividends, elements which are outflows in any environment, and adds to it the numerous potential contingent needs for liquidity and calls on capital. Uncommitted and contingent letters of credit, a significant operating upset at one of our large facilities, the working capital impacts of rapidly changing crude prices, as well as other potential calls on that capital base. Offsetting these potential calls, which we model under a probability matrix, is the operating cash flows we expect from the business in an extreme downside scenario. Conservatively estimated for these purposes at at least a billion dollars of cash generation. This is supplemented by the committed capacity we maintain in the two facilities, all balanced with cash. Importantly, these core liquidity requirements are lower in a sustained lower price environment.
As you can see on the right-hand side of the bars, the current committed capacities are more than sufficient to cover the core base liquidity needs of the business. We also find ourselves in a situation where the opportunity set for further investments in the business, enhanced substantially by the combination of MPLX and MarkWest, is expanded across the enterprise. With the excellent growth opportunities in the core refining and marketing business, midstream, and retail on the MPC side of the business, and the deep set of earnings and cash flow growth opportunities available to the combined partnership that Frank just walked through, we have the ability to pursue growth where it best fits the long-term strategic vision and provides the best risk-adjusted returns to the business. The enterprise also has an extensive set of tools and levers to accomplish this earnings growth over time between the two entities.
MPC as the sponsor and general partner of the combined MPLX will have the ability to, among other things, incubate projects at the parent and make them available to the partnership once they hit full run rate cash flow, take back units in consideration for any drop-down transactions, muting the market impact of new units. As was alluded to earlier, we think it's more likely than not that we'll drop the marine assets in the first half of 2016. I think also it's more likely than not that MPC would take back nothing but units in exchange for that transaction. Provide intercompany funding to the partnership, either in the form of debt or direct equity infusion into the partnership.
As Nancy highlighted earlier, in the overall financial profile of MPLX effective tomorrow, an early illustration is the expansion of the intercompany facility that will operate between MPC and MPLX, which is now expanded to a half a billion dollars. We have the opportunity, as you've heard on a couple occasions, to consider the drop multiples that are used for the very significant and growing backlog of MPLX eligible earnings that exist within MPC's core business, as well as the multitude of modifications to GP cash flows and other opportunities to support the partnership and the targeted distribution growth over time. The enhancement to the GP cash flows resulting from the combination only serve to enhance this flexibility further to support the partnership.
The extensive flexibility becomes a tremendous asset in the MLP market environment we've experienced over the last several months and stands as another very important differentiator for the MPLX pro forma entity amongst its peers. Part of this long-term value creation exercise will be remaining focused on and disciplined around the investments that we make and the go, no-go decisions on projects as well as how we allocate the capital. As we evaluate the substantial opportunity set available to the business, our initial screen and a fundamental part of our ultimate decision to proceed with an investment will be the risk-adjusted returns and the cash flows the investments provide to the business. The target hurdle rates here, 10% for midstream, 15% for Speedway, and about 20% for the core refining and marketing business, establish the ranges we'll continue to use to prioritize and allocate capital.
These hurdle rates incorporate an underlying risk-adjusted cost of capital with an adder on the desired value premium we expect for those investments in the respective businesses. This approach ensures the value add from these investment decisions continue to drive real value for our shareholders for the long term and further allow the continuing returns of capital I talked about this morning. As Gary alluded to earlier, one area that we think is probably underappreciated is the value that the MPLX partnership represents to the MPC total. This simple illustration takes a look at assuming what we think are conservative assumptions around LP yield and GP multiples, what the value of the partnership in total from both an LP and GP ownership perspective represent to the business under what we believe are conservative assumptions. You can see here that the value is somewhere between $20 billion-$40 billion.
That's PV to today off of 2019 potential cash flows and a range of yields between 5.5%-3.5%. On an MPC share basis, this represents somewhere between $30-$56 per share. Although we can certainly debate the assumptions used here, I think it's very clear to us that this value is not reflected in the value of MPC and is a dramatically underappreciated value to the total enterprise. The long-term and continuing focus on capital discipline, even in a business where the regulatory and compliance capital has been significant at times, has resulted in a return on capital that is amongst the highest in our industry.
As you can see in the MPC bars on the left, the business has produced a return on capital employed at or above 15% in each of the last three years and 16% over the full period beginning in 2013 and year to date to 2015. Year to date 2015, it's closer to 20%. Our focus and discipline of pursuing the highest risk-adjusted return projects, strong asset efficiency, consistent operational excellence, and consistent focus around optimizing our capital structure will enable us to remain an industry leader in the returns on capital we've been entrusted to manage. We thought we'd also take the opportunity this morning as we have everyone gathered to highlight a difference in accounting treatment we employ that some investors may not be familiar with related to turnaround activity and major maintenance and the impact this has on reported results.
This is especially relevant for investors whose focus centers on EBITDA. As a longstanding practice, we have written off these expenses as they're incurred, which differs somewhat from the approach of others in the industry who capitalize those expenses. Although GAAP earnings will simply catch up over time, the amortization of the capitalized expenses will ultimately sum the total cost of the turnaround activity. EBITDA, which obviously adds back depreciation and amortization, is permanently impacted. By our estimates, this results in the EBITDA for MPC, which would be somewhere between $500 million and $1 billion higher each year. Applying an assumed refining multiple to the difference results in a valuation difference of between $5-$9.40 per common share. With that, let me wrap up my comments on the fundamental, and in many cases, underappreciated value drivers in this business, many of which we've highlighted and discussed this morning.
We believe real long-term value is afforded by the integrated management of the enterprise for both MPC and the combined MPLX, as decision-making and capital allocation will continue to be conducted with a focus on pursuing long-term industry solutions that are of benefit to our customers and to our investors. The powerful combination of MPLX and MarkWest enhances substantially the midstream growth opportunities available to the enterprise and furthers a growth profile for the partnership, which will be amongst the most attractive for investors over an extended period of time. We will continue to benefit from one of the country's premier refining systems, operating in some of the most advantaged regions. It's also a system with a degree of optionality and flexibility that position it extraordinarily well to respond to the short and long-term changes in crude supply and refined product distribution patterns in the United States.
The assured sales through our multiple channels, through our brand network, wholesale relationships, and Speedway business provide consistent and flexible marketing opportunities, as well as the ability to identify and redirect products to markets of greatest value in a rapid fashion. The Speedway business, which is now a billion-dollar retail operation, has multiple opportunities to drive long-term value, including those existing with the acquisition of the retail assets on the Eastern Seaboard, which you heard this morning are quickly becoming as high performing as the legacy assets in the Midwest. Perhaps most importantly, we understand and embrace the responsibility we have in driving value for our shareholders and remain extraordinarily focused on delivering on the value proposition this business represents for investors for the long term. Thank you for your gracious attention.
With that, let me turn it back over to Gary for some closing remarks and to open up for questions.
Have a seat. Well, as I invite my team up to get ready for the Q&A, Don shared with you our macro outlook. Let me give you my short-term outlook. Philip Gresh was in to see me a while back. In fact, reported on a question he had. He asked me, "What do you think the outlook is for refining in 2016?" Let me give everybody my discussion points on that. That is, I think 2016 is going to be a little bit better than 2015. The reason being, as we saw crude oil prices fall, we really had expected to see a pickup in volume earlier in 2015 than actually happened.
I believe as the consumer really regained confidence, as the consumer had more discretionary funds and driving improved, you did not see the demand effect until really starting in the latter part of the second quarter. We have that behind us. We have wind at our back, and I think you're going to see this demand quotient continue strong into the first quarter. With that, as you look at the turnarounds across the industry, I think it's going to be a robust turnaround cycle going into the first part of the year, I think, which will help balance things and, in fact, improve margins in the first part of 2016. Lastly, I always give you my crude outlook, and Don gave you how we're planning and how we're doing our business.
I really believe 2016 is going to exit somewhere in the $60-$65 range, and 2017 is going to exit in the $70 range. I don't say that just because I'm picking numbers out of the sky. If you look at the fiscal budgets that the major producers around the world require to be able to run their countries, then if you go back in time and you look at history, I've been in this business for 41 years now, I've been through a number of these cycles.
If you go back and look at time and you look at the rhetoric and you look at all of the conversation and communication that's going on, as will happen tomorrow at the OPEC meeting, you see that it always takes time, and the drums are beating, that there are some now-- in fact, there were some things written overnight about some hints on production. I think it's going to take through the spring. Crude did close below $40 yesterday. I expect to see continued pressure to the balance of this year into the first quarter. Inventories continue to grow. You'll see, I believe, by spring that the crude market will start to rebound and that we will exit 2016 somewhere in the $60-$65 range. That's my outlook.
As Don illustrated, we're planning at a lower number, and that now affects more of our midstream business than it had in the past. That's really our outlook into the future. With that, let's open it up for questions. I appreciate all of your support and communication. Doug? No.
Not through the mic. But we need to get it.
Is that better?
There you go.
Yeah. Your sector has been one of the few in energy whereby capital spending and distributions have been managed for positive shareholder outcomes in the last several years. Simultaneously, with your opportunity set and lower midstream valuations and your stated desire today to multiply your EBITDA in the midstream, it seems like you guys are in for a pretty major expansion phase. My question is, how does the company balance the desire for significant growth but also value creation too, while sustaining its balance between spending and distributions? Do you have any changes to the way that you think about that relationship, which I think is a pretty important relationship given the growth outlook that you talked about today?
Right. I would say that the operative word, Doug, is to harvest. I think what we have accomplished, the quality assets that we put together, I take you back to finishing. I had a lot of naysayers when we were building Garyville, then they wanted to know, "Can't you go faster?" Then when we were building Detroit, "Can't you go faster?" Each step of the way has been quality assets. Garyville, Detroit, Galveston Bay, the list goes on. I think where we are right now, this team here, I've got them right to the edge on what we can handle in growing in the transition and the relentless pursuit of execution. I know we will get it done. I really want to, over the next few years here, harvest what we've put together.
I think there's tremendous value that we can capture through the midstream side, through the Speedway side, all these projects that Rich talked about are very high return, really low capital type return projects. My operative word is let's harvest, let's build our balance sheet back up. I want to continue buying back stock. 27% in four years is a pretty good record, I want to continue that pace, we'll see what happens in the marketplace. Paul?
Thank you, Gary. Gary, what do you see as the major risks to this deal? Particularly, could you talk about the outlook for NGL markets? You surprised me a little bit by saying that you thought distillate demand would exceed gasoline demand growth, where I feel like the world has changed a little bit in that regard. More importantly, could you talk about the outlook for where all this NGL is going to go and whether that's the biggest risk you face with this deal?
Right. Let me take you back to the distillate market for a second. You have to look at the globe on the distillate market, not just domestic. Tony outlined in his slides, we have a 29% expectation of transportation fuel growth for over-the-road diesel growth. If you look at the globe, gasoline was very strong in Europe this year. Refiners did well in Europe this year. When you have an improvement in refining margins in Europe, with that also comes some distillate output. The distillate output and the exports of diesel into Europe this summer were a little bit down. That's why I still see global distillate demand continuing to grow. We show this outpacing gasoline. Gasoline was very strong this year because of the octane component, if you look at Latin American countries, specifically Mexico and Venezuela, were importing gasoline this year.
I think that they're going to have to continue to do that. Long term, we see distillate still being a very strong component. Frank, would you like to take the NGL question, please?
Yeah. Really, the issue around risks for MarkWest is really driven by the Northeast. You got to think about the value of NGLs being the big issue there. It's not as much a Bellevue issue as it is a basin differential issue, Northeast versus Bellevue, and the ability for the Northeast barrels to compete against the Gulf Coast barrels to Europe and Asia. I like to make the point that today, if you look at the last three years, the average propane plus purity product basket has been priced at Bellevue plus $0.04 or $0.05. 2015, that's dropped to Bellevue minus $0.12 to $0.15. Again, that's an average for the year. Why is that? It's the oversupply of NGLs in the Northeast and the lack of access.
If our Northeast Marcellus and Utica producers were netting back at Bellevue flat even, they'd be very healthy right now, and you would not see the migration of rich gas rigs to the dry gas rigs. If they're trading $0.12 to $0.15 off of Bellevue because of the disconnect in supply and demand, then they're suffering. That's why it's so important that we are able to drive projects that will get better access to the water and also create more in-region demand, really create that kind of Bellevue in the Northeast capability that will allow our producer customers in the Northeast to realize a Bellevue flat. Overall, Bellevue prices are going to be driven by oil prices, naphtha prices, et cetera.
Again, we all are comfortable because of all the things that Gary just mentioned, that you're going to continue to see or you're going to see some recovery. It's not going to get back to $100 anytime soon, but $60, $70 drives a Bellevue price that's very attractive to all the producers in the industry. In the Northeast, the critical issue is to trade closer to Bellevue, and that's why really, it's one of the biggest drivers in this transaction is to be able to control your own destiny, drive those projects, and not just basically just say, throw your hands up and say, "Well, look, we're not going to invest in the Northeast in any of these projects." We're always then in the Northeast going to be trading at a huge differential to the Gulf Coast in the world markets, really.
It's a basis differential that's really key. We have the ability to control that.
Let's go to Chi next, and then I'll come over to Ed afterwards.
Great. Thanks. I appreciate all the details on the projects you've given today. One thing you continue to be a little vague on is this notion of delivering products and NGLs to the East Coast market. Can you give us some additional details on what the scope of that project is? Is this an MPC, MPLX project? Do you leverage third-party infrastructure? What's the timing? NGL product mix? Any details would be helpful.
You want me to give everything to the competitors, Chi? I understand your question, and it's fair. I don't want to give everything away because competitors seem to listen in on what we say, too. We are interested in not only natural gas liquids, we're also interested long-term in refined products going to the East. There are some pipelines that are already in position that could be reversed. If you look long term, if you take things to the Gulf Coast, which is certainly a high probability, or I should say a high possibility is a better word. As Frank just said, are you controlling your own destiny? There's a huge hub in the Gulf Coast today, there's a lot of economic rent that goes with that hub, the way it's positioned today.
I believe that we can go east and capture some of that economic rent by looking at refined products, by looking at NGLs, by looking at exports from that point. I don't want to go any further than that from a competitive standpoint today, but we're looking at many different options. I saw some notes that Christina sent in on, she wanted some concrete evidence. I can't quite go that far yet because we're negotiating on many different parameters today. All of those things are falling together, and the good point is we have multiple strategies that we're looking at and multiple strategies that we can employ. I think with this size and scale we have now, we have a bit of leverage in being able to decide what's the best way to go. Ed?
Unfortunately, going to be another NGL question. Refining may be the secondary topic today. Producers are stressed. Oil prices are low, gas prices are low, NGL prices are low. Producers are switching to dry gas production away from NGL production. There could be counterparty risk in terms of the upstream supply given balance sheets. I just want a sort of a bit of a sense of how much risk in a downside case you think there is to current EBITDA, and then obviously the EBITDA growth of the MWE portfolio, thinking about the mix and also counterparties.
The counterparty risk is something that we've obviously been looking at and trying to manage. If you think about the Northeast, the Marcellus and the Utica producers, we have a mix of single B all the way to investment-grade companies. The easy answer is that if you look at our forecast for volumes and EBITDA, we have factored into that two big issues. One is the liquidity of those producer customers. Again, we have relationships with our producer customers that allow us not just from the standpoint of their credit rating, but also their liquidity. Our forecast is determined based on our visibility into their balance sheet capability to support X amount of capital for the drilling program.
The second issue is the thing I talked about earlier, and that is just simply their drilling programs, their capital programs, again, supported by the balance sheet, and the volumes coming from that drilling program, whether it's rich or dry gas. We're doing the best we can. I think that Somebody asked the question, Paul asked the question earlier about where's the risk? I think that is a very real risk. We are going through a correction right now. It's happened fairly slowly. I think it's sort of a soft landing from the standpoint of a producer standpoint. There is too much debt out there, and there is going to be continued correction, and really, that needs to happen.
The fact that we happen to be located in some of the best economic areas of the U.S. from a producer economic standpoint gives me a lot of confidence in our ability to kind of weather the storm, but also be in a position to be able to benefit as the rigs start to drill. The rigs are going to return, and when they return, they're going to return to the areas where the producers have the best economics. That's why all the science in this, I'll call it insider information that we have about the economics of our producer drilling programs gives me a lot of confidence that long term, we're in the best places to be able to invest in these type of projects that we've been talking about.
On a macro basis, you think about the fact that right now, if you look at an average Marcellus well, zero capital means about a 15% decline per year. In a market where you're basically going from, Don had some of these numbers, I believe, from 75-90 Bcf a day of demand in the U.S., yet if you look at a 15% decline overall, kind of do the math around that, you've got 10-12 Bcf a day in a market that's growing from 76-90. It doesn't take long. That's on the gas side. You got similar type of decline curves on the oil side. The correction is happening. It's happening slowly, but it doesn't take much time for that correction to take place, and you see the demand better match the supply.
Okay, Paul. Let's go to Paul, and then we'll come back over to Evan.
Thanks, Gary. If I could, two quick questions. One of the hallmark for the company has been integration and has served you extremely well, and you're a big proponent. It makes sense to have all this business together. Over the next several year, as each one evolve and getting much bigger and be able to stand on their own, do you still see that as the core of your business strategy, or that you can foresee that under certain scenario or market condition that it may be different, that you could be in a different complex structure. The second question is for Rich. We hear all these wonderful projects that because of MPC present that MPLX and MarkWest will be able to do. We all understand that.
Just curious that on the reverse, is there any refining project from your standpoint that you will or will not pursue because that whether you have MarkWest or not? Thank you.
Right. To your first question, Paul, that has been our hallmark and will continue to be our hallmark. I get a lot of questions on, "Why don't you IPO the GP?" I said, "Well, give me a little bit of time here. We just did a big transaction here." We will always continuously evaluate this. I'm not going to say no. It's just today it makes sense for the 70% controlled volume that we have on our slides that Tony was illustrating. That drives tremendous value because the thing that I always have over a merchant refiner, merchant refiner can only sell price, where we can sell movement and logistics and always be a price taker in the markets that we can get to faster than anyone else. It makes a lot of sense for us. I'm not going to say never.
MPLX in the midstream, there have been many precedent transactions. You're absolutely correct, where they've done IPO and monetized the GP part. Today's not the right market to even consider that, over time, certainly we will consider that. I think for the short time when I said harvest, I want over the next couple of years to be able to harvest all of these businesses, get them set up, and have them very strong on a standalone basis, then we'll see where it takes us from there. Rich, you want to?
I don't think we've been starved for capital and refining. You look at what we've been able to do with GME and then the Detroit Coker, our focus is really in Galveston Bay, and that's really what brings us the best returns. It's a more complex asset development program than, say, GME, which was a standalone grassroots. This is an integration into the whole process and how we integrate two refineries. That's a big challenge going forward. That's going to take a lot of our engineering talent. I think our pace of being able to do projects is healthy. They maybe aren't the big billion-dollar ones, of course, but we've got a lot of good projects in our portfolio in all our refineries that'll increase our margins as going forward.
Sorry, Rich. My question is that Sorry, Rich. I guess my question is that we can see MarkWest, for example, that they may want to do some NGL project because of you could have MPC as an anchor shipper. I'm just curious that is there any projects that in the refining side you may consider, okay, I will do that because I have MarkWest inside the family and give me a synergy for me to do it. That's what my question is.
Go ahead, Don.
Yeah.
I mean, we outlined the Alkylate project is the first one. It makes great sense. Would we do that standalone? Maybe. Great synergy because of all the hub of the butane that's available down in the Utica area. That hub there, very close to our refinery sector across the Midwest that we can use this octane to blend up. You don't make finished gasoline in refineries anymore, for the most part. You make CBOB and RBOB, then you blend it up. We need that octane component, and we can use that octane component not only around the Midwest, but also to take it east into the future. That is a project. Rich is right. We deferred the Garyville ROUX project. We're very capital disciplined, and the way the market is, didn't make sense for us to go forward with the Garyville ROUX project.
I wouldn't say that we've deferred anything else. Frank, you want to add to that?
Well, again, from a low-hanging fruit standpoint, you have in addition to the big $2 billion projects, the fact is that Marathon is a big consumer of stuff. They're consumers of natural gasoline, a condensate, butane, propane. Mike and I are sitting next to each other here, but there's a lot that we can do, I think, to really just optimize the needs of Marathon and, in the same time, improve the overall value of the NGLs that are being produced in the Northeast. Those are types of projects that we need to do more of, and we're just starting. The condensate project, condensate stabilization project that we didn't talk about today really.
I think Pam may have touched on it, but that was a project where basically we are producing a lot of field grade condensate in the Marcellus and Utica, and it needed to be stabilized to be able to really fit the feed for the condensate projects, the fractionation projects at the refineries. Working with Marathon, they're our biggest customer right now out of our stabilization project. To me, I said it earlier, we need to get these companies together. We need to get to know each other. We need to form teams. We need to go after all projects. There are a huge amount of synergies between the two companies.
There's other synergies, I think, through the propane markets and the production in Catlettsburg and what we can put to MarkWest facilities. We've talked about the natural gasoline towards the Utica condensates. We're a big consumer of isobutane, and MarkWest is a producer of isobutane. There's all those synergies that I think will be coming out in the future.
Okay, Evan?
Yeah, great. Thank you. Gary, I agree with your views on refining. I think that will have a bigger impact on your relative earnings. We'll stay also on the midstream topic, and my question is, you mentioned the likelihood of taking back units in 2016 and that drop. Can you discuss how you approach that decision of taking units versus forcing price in the market and how should we think about that affecting the pace of buybacks, essentially? Is it something that you'd put to the balance sheet and buybacks, given your view of the value of your stock, would remain the same, or would we assume that there's an offset in that pickup?
Certainly. Tim?
Yeah, I think a great question. As we have thought about and started to plan for 2016, the potential for a drop in early 2016, I think as we evaluate all of the options available, the taking back units this year might be a nice bridge into maybe a better market later on. That's something that we'll continue to evaluate, and maybe the right way to answer it is that that suite, that tool set of things that we can do to help support the growth, either on drop scenario, organic funding or other means, are things that we'll continue to evaluate over time.
Rather that slows down what we do at the MPC level from a share purchase perspective, I think you've heard this morning, I think you've seen it for the last four years, the intent will be to strike a balance and make sure that there is a continuing focus on return of capital in the form of dividends and share purchase balanced against the investment needs of the business. That may wax and wane at different points in time, the focus will be there on a long-term basis. I would say that the share repurchase intent is not at risk. We will adjust that over time as the needs dictate, clearly our intent, and we understand full well that for investors, that is a key part of the equation, and that's where our head's going to stay.
Can we get a microphone?
Yeah. I had a follow-up.
All right. Let's do a follow-up, then we'll come to you, okay?
My follow-up, and it related to the balance comment that you just made. The $6 billion-$9 billion of combined strategic spending, I presume that's, number 1, there's nothing included in 2016. Number 2, that you view that as path dependent upon cash flow and market conditions, and it's not necessary to achieve your medium-term distribution growth guidance. Can you comment on those different elements?
Yeah. I think, Evan, the characterization of six to nine is upside is entirely correct. Based on how we've seen the business, the distribution growth path we've planned is something that's achievable without it. That's all upside to the business and has a longer-term orientation to it. Again, this will be a resource allocation equation that we'll solve as we go forward. I think the hallmarks are going to continue to be a real focus on return of capital out of the parent and a focus on the growth of the partnership where it makes sense over time. Again, which tools we operate with and exactly when we operate with those is, I think, a tremendous asset to us at this point.
All right. This gentleman had a quick question, now we'll come to Kristina.
Yes, thank you. Just a quick question to follow up with Tim on the contemplation of taking units for the drop-down. Did you mean nothing but units, like you said, or no debt component of a drop-down?
Well, again, this is a decision that's not in its final form. Yeah, I think there is at least the strong potential that we would do nothing but units back, so no new debt. Obviously, part of the integration of the partnerships will be to manage the debt profile, as Nancy highlighted this morning. We're going to watch that carefully, make sure that the partnership on a pro forma basis maintains its investment-grade characteristics, and we'll manage accordingly.
Okay, Christina?
I do appreciate the clarity on page 69. Maybe you didn't give me the actual projects, but maybe could you talk about the Alkylation project or the NGL mines one, when do they maybe move to FID timing-wise? MPC's role throughout the entire project, is it just incubation up at the parent? Is there potential to do contract commitments to maybe off take some of the risk and just how I should be thinking about that?
Okay. Don?
Yeah, Christina, let me maybe comment on the Alkylation project and going maybe to Paul's question. That project is actually the idea of it and the source of the butane was from MarkWest, a lot of the engineering is being driven by our refining business. We have a big team already built around that project. We have spent a lot of time evaluating multiple, I would say configurations of how that might work. In the near term, we are getting closer to reaching a decision on what we think might be the right configuration and who we would be using, we will get directly into cost estimation and those type of things. We have high-level cost estimations. We have relationships with contractors around how that would work.
There's been a lot of feasibility around just making sure that you'd have infrastructure in place to be able to support, it's a very large unit, so to be able to support a very large unit like that. It is progressing at a fast pace, and we have a team fully dedicated to evaluating that and progressing that.
That's the second part of it, Gary. Maybe MPC's role, like the first set of projects, do I expect them to be projects that you take volume commitments on? How do I think about that?
Okay. You want to take this?
Well, I think part of it, if you think about what we've been trying to do when we partner up with MarkWest, is we're very focused, just like they have historically been, on making sure that we bring the highest net back to those producer customers. They're in a situation where they have more production than they have takeaway capacity to markets where they want to get sort of the highest realization. Our view around some of these projects would be maybe historically, if it was a refining project, we took all of the volatility risk. There will be opportunities, I think, to sort of mold or to meld the two different formulas in terms of how you approach a project. MarkWest has historically been, let's try to get a fee-based project.
We take less of the volatility in terms of the commodity risk, we also then allow the producer to get a higher net back. I think that's an important part of our energizing our two teams and synergizing our two teams around opportunities like this. You saw the opportunity set is a very big opportunity set. There, in our view, is plenty of economics to go around, we will figure out what the optimal way to make that economics work.
Just another quick point. Keep going down these rabbit trails, I apologize, but it's important to understand that our commercial contract structure for our producer customers are pretty unique in that we have the responsibility through these contracts, these agreements, to market the NGLs for them. Essentially, we take the liquids in kind, then we market them. In a project like the condensate stabilization project or this alkylization project that we're talking about, the key is that we are committing those barrels that are our responsibility to a project. That's the stickiness of the relationship that we have with our producer customers in the Northeast. There's a few situations where the producers have taken, with our permission, they've taken those products into kind.
For instance, on the Mariner East 1 project that's public out there, Range Resources is committing volumes on a firm basis to that project. We've released them from their obligation for us to market. They are marketing it directly on the ship, on the VLGC at Marcus Hook. My point here is that these projects have to be supported by our producer customers through those in-kind agreements. When you have a really good project with a lot of margin opportunity, the producers really need to feel like they have the right commercial arrangement to be able to support their economics for that. This is really a key. Again, it's a real benefit with Marathon is because they are essentially also in the commodity business. It works.
I think there's going to be a good alignment of interest with our producer customers and the refining complex.
Right. Before I go to Doug and then to Ryan, one other thing, Kristina, to your point, will we ever term up and do a T&D? I don't necessarily like that term, but we do lots of T&Ds these days. As I've talked before about our strategy going east with refined products. If we look at this hub that I'm talking about, if that's the direction we end up going, certainly, we'll be looking at being an anchor shipper because with all of the acquisitions that Tony has made across the East Coast, we've already seen tremendous synergies on how we're supplying that market versus the past. Well, some very simple economics.
If it's costing $10-$12 a barrel to get crude from the Bakken to refine it on the East Coast, I know I can move it by refined product pipelines for a couple of dollars a barrel. There's a tremendous advantage there by moving refined products. Being the largest refiner in the Midwest, it's also our strategy, back to Chi's question, very first question. We want to balance the Midwest, and these shoulder quarters, we want to be able to move product, and I think we can move product and transport product a lot cheaper than people can transport crude and then refine it into that market. I think that is our long-term strategy.
It's a big part of this strategy when we were looking at MarkWest is where do we go a number of years down the road, we've been thinking about how we get things up. We have the market. Not only do we have the market with direct retail, we now have the market with wholesale also on the East Coast. That makes a lot of sense. Let's go to Doug, and then I'll come back to Ryan, okay?
Thanks, Gary. One of the routes to, I guess, a re-rating of some of your peers has been diversifying your earnings stream. You're obviously doing that in spades. If I look at slide 12, however, you're going to continue to consolidate MPLX. Can you tell us what the midstream component, how that blend changes on a net basis? Because most of us tend to look at it on a sum of the parts. My follow-up to that, if I may, is given what's happened to MPLX's share price, can you talk about how you see the pacing of drop-downs in terms of the liquidity of what is essentially still a retail market in terms of its ability to absorb the scale of the growth that you've laid out today?
Sure. Tim, you want to take this?
Sure. Well, let me address, Doug, your second question first. Clearly, the yield environment for MLPs has been a game changer frankly, really since the time this deal was announced and really through the summer. That, I think you saw as part of the third quarter earnings, our indication that we would be looking at some form of sponsor support or drop earlier than what we might have expected. I think if we persist in an environment where the MLP yield and MPLX specifically is trading where it's at with a higher yield.
It probably accelerates that path. Again, our commitment is around the distribution growth path that we've laid out, and we'll figure out exactly how we need to get there, but it very well could impact the pace and the size of the drops as we go forward. That's something we'll continue to evaluate. I think you heard from us this morning, we'll continue to say that we think where MPLX is trading now is ridiculous. For the growth guidance that we've provided, and have affirmed now through the second quarter and part of the transaction, the fact that these units trade down with a 4.5%-5% yield to us is so disconnected from a fundamental reality that it's hard to imagine.
Hopefully, through the transaction, after tomorrow, some of the dust settles and you get people refocused on exactly what the long-term value proposition is, and we certainly expect and would hope to see that, and if we don't, we'll solve the equation as we go forward.
Let me put a little bit more meat on the bones with this transaction. Yes, we've been confused. We announced this transaction the day after the Iranian accord. Crude oil prices have just gone south since then. Tremendous volatility and a very bumpy, choppy road within the midstream business since that point in time. I outlined where I think, and I'm very confident on where I think crude prices are going to go in 2016 and where they're going to go in 2017. What has led this market to where it is today, it's not necessarily a flight from quality of earnings. I think there's going to be tremendous consolidation in this space. We have consolidated the best in the space. MarkWest is the best in the space, and it's going to give us that platform to go forward.
The market has certainly not rewarded any consolidation, not just us, any consolidation in this space because there are no inflows of capital coming in. I think that's going to turn. I've said this on our earnings call, and I've said this on other calls. Everything will divert to the quality of an earning stream, the quality of the cash flow stream. We now have a large-cap, high-growth MLP, and it's high quality. I think everything will revert to who has the highest quality, who has the best growth going forward. I expect that this yield will recover, and this yield will come down. We've got to get through the noise over the next couple of weeks of all the shorts and puts and swaps and everything that is in this marketplace. It really should clear by tomorrow, you would think.
It hasn't yet, and we'll get through that. Everything will come back to the quality, and I think our MLP will be able to illustrate that we have the highest quality growth story in this large cap space. Ryan, and then I'll come to Roger.
Okay. Thanks, Gary. Maybe this to some extent depends on or is a reflection of your view on the duration and the sustainability of the size and the duration of the octane shortage. Can you talk a little bit about, you've got a number of alkylate projects going on. You got expansions from a couple of SEC projects. You've got the potential expansion in the Northeast. How do you view your strategy within, in terms of taking advantage of this market? Is it primarily to supply your own refining needs? Do you want to expand larger into the third-party market? What do you see as in terms of the size of the market and the risks that we see an eventual over-capitalization of this, and maybe your first-mover position within that?
I totally understand. Let me have Rich talk about our reforming capacity first.
Again, we've got a great position. I think we showed in the 2013 our reforming capacity was really, I think it's an industry leading as a percent of crude. We're not really looking at any real reformer capacity increases. We've got the capacity to take the lighter crudes in. We have to reform them to more severity to get the octane. We've got some other projects in addition to the Alkylate around pentane isomerization, smaller projects there to increase octane, but they're not huge producers. The big mover, it would be the Alkylate project with MarkWest. You're talking about 20,000, 30,000 barrels a day of Alkylate that could leverage into. Well, that's quite a bit of octane. Do you want to make it into the premium market or the regular unleaded? The premium market is not that deep, okay? Most people still just fill up with 87.
The octane values have gone up because everybody needs to do something with all the other light straight run that you've got coming out of the refinery. That's what's maybe driving it. I don't believe it's a real deep market. We produce maybe 10% of our gasoline production is premium. Part of that goes into the mid-grade, but that's where we are in that regard. I don't know if you want to talk about it, where you think longer term.
If you get out and look at the CAFE standards that are requiring a 34 MPG by 2022, I believe it is. That's going to demand, therefore you need to have higher compression engines to be able to meet this demand, and it's going to require octane. The other thing to watch, some of our global customers are requiring octane as well. If you look at the components that are coming into the East Coast, and really what is coming in, it's a lot of reformate and some CBOB type things are coming in. They also need some octane in order to be able to blend that up. This is going to come down to a first-mover advantage.
The thing we have in the Midwest, by having our refineries in the Midwest, that we can soak up some of this octane, having the butane and the project that Frank has been talking about. We have the source of the butane there. We also have, we believe, we have opportunities, whether we go east or whether we go south. We have opportunities either way. For octane, we have opportunities to either blend it all up here in the Midwest and not bring up octane from the Gulf Coast, blend up what we need in the Midwest, or even to take some octane if we decide to go east. We have many options, and I think we also have everything always clears at transportation cost, and I think we'll have a transportation advantage because we're this close to the East Coast. Roger, now come to Faisal.
Thanks, Gary, and maybe to change direction completely here. Retail, the Hess deal worked out great. Timing is, if not everything, certainly a nice component. You mentioned in the presentation or it was mentioned within the presentation, some geographic holes. I was wondering, would you look at something even beyond just those geographic holes? And then as a second question within that space, MLP within the retail or the type of assets that are within retail, it could be MLP, are those included in the numbers that have already been discussed?
Sure. Let me ask Tony to talk first about the geography, then I'll come back and talk about the MLP.
Yeah, when you think about retail, you want to leverage your existing assets. Retail is all about market share. While there may be some great opportunities to move outside of our current footprint, my comment was specifically meant to tell everyone that there's still many opportunities within our geography to leverage existing assets to be able to actually outperform competitors in those markets. On top of that, I think the second piece, and we've mentioned it several times, is we also want to maintain that synergy with the existing MPC refining and distribution system, because again, we know there's uplift in our performance based on those synergies as well.
Okay, on the retail side, I'm not going to go get too deep before I call on Tim or Nancy here as far as MLP eligible assets. Retail by itself is not eligible. You have to have a C corp blocker, so it's not as efficient. It's something that we will continuously review and evaluate on what makes sense for the long term. Anything else to add, Tim?
Yeah. No, I guess I would just comment that we've identified as part of our $1.6 billion sort of the fuels distribution component, which I think has more of a wholesale orientation to it. I think our opportunity going forward to identify pieces that are maybe closer or attached to the retail chain are in front of us. They're not part of the $1.6 billion, we'll evaluate those sort of at the appropriate time. We've got sort of all of the backlog we need at this point, I think we'll never say never. That's something we can certainly consider as we go forward.
Okay, Faisel, then we'll come over next to Paul, yeah.
Thanks. Just a couple of questions. I'll just rattle them off. I appreciate your comments to Doug on how you plan to maintain the growth and the distribution to MPLX. How are you thinking about balancing the demands of MPC shareholders versus MPLX unit holders? There seems to be a clear concern for new MPLX unit holders that MPC will maximize the value of the GP and therefore maybe minimize the value for MPLX. Second question is, what is the guidance and outlook for MarkWest? We've seen a few numbers now. There was the guidance and outlook that was put out at the Analyst Day.
There was what the numbers are put in the proxy, the base case, the low case, and the high case, Frank recently talked about how some of those numbers have changed with how he's looking at the credit quality of the customers. Last question on Alkylate, what is your assumption on Alkylate in terms of the spread between butane and gasoline to get to that $400 million-$500 million?
First of all, how do we balance the needs of unit holders versus shareholders? That's our requirement to be able to balance that as a GP. I think what Tim and Nancy already spoke about, the first drop, we're going to do it with units. If we want to do it with cash and just maximize the amount of cash that comes back to the GP, that would be at the detriment of the MPLX unit holders. We've already said, more than likely, we're going to go another route to be able to always maintain our investment grade. If you look at our history throughout the time, October of 2012 is when we started our IPO. We've always been very balanced. We've always been very transparent on what we're doing, and you will continue to see us accomplish that.
I used a word that I think is the most important word for this team, sitting up here at the very beginning of my presentation, that's credibility. If we were to lose credibility of one versus another, game over. You're going to see us always be balanced, and we're going to do what's right, and we're going to do what's right for the long term. On the next question, Rich?
On the butane Alkylate spread, it's really looking at butane in the basin and the maximum would be butane in the basin versus Alkylate in the harbor. That kind of economics.
MarkWest guidance?
I'm sorry?
MarkWest guidance?
Dave.
MPLX guidance, right?
Right.
As we developed our standalone guidance for our third quarter earnings call, I thought I was clear on the call that we were providing that 6%-10% distribution growth guidance based on our standalone business plan. Now that we are a merged company or will be a merged company, we are talking now about the MPLX guidance that Tim and Nancy talked about. Obviously, we've factored into that MPLX guidance the things that I mentioned, the risks associated with the volumes, the commodity price environment, the project schedules, et cetera. We obviously feel confident about the MPLX guidance and MarkWest's support of that through our operating income.
Okay. Yes.
Shneur Gershuni with UBS. I guess my first question's really for Frank. You've laid out the CapEx that you plan for the Northeast. Given the fact that we're seeing producers shift away from liquid rich, you've got a lot of gas coming into Utica as well, too. Does that change the cadence of your investment? I think Pam had said before $1.5 billion a year is what it worked out mathematically. Does that cadence change at all? How should we be thinking about that? Is there risk to that number as well, too?
Yes. It has changed. Our capital schedule, as I mentioned earlier, is based around all those in-depth discussions around the producers' drilling programs, which takes into account their decisions. Most of them have that option to drill rich versus dry. If you think about our third quarter earnings call guidance on a standalone basis, we had a wide range of CapEx there, and I think I mentioned on that call that that range really is going to be driven by the timing of the projects required for the producer customers. If you think about the midpoint of our range of $1.2 billion, that's still our current midpoint. Part of that CapEx is completing plant projects that were already in progress.
When we talk about our fourth quarter MPLX business, we will give you an update in terms of really the utilization, which will drop because we're completing plants that really were intended to be operating more in that 70%-80% range. We'll have a drop in utilization. Part of that 1.2 is the completion of those plants. Now we're moving those out as much as possible to optimize capital. Yes, the volumes through 2016, we talked about it last June in our Analyst Day. We talked about it continuously on our earnings call is that it's flattened out for a period of time. Again, we've got a lot of confidence in those volumes returning as we drive the value of the NGLs.
Frankly, we haven't talked about it at all, the slide I typically use in a presentation like this really also reinforces the fact that there are significant downstream gas pipeline projects that have come on in 2015. Will continue to come on in 2016. There's like $30 billion of open seasons out there right now for downstream pipes, that as they come on, they will improve the net backs of the gas side of the equation for our producer customers. Again, we've got a lot of visibility into all those projects. We're trying to manage our capital. We are managing our capital in a way that's just in time. We really want to bring, and we can do that because of the scope and scale of our operations up there.
We can defer plant projects and fractionation projects and compression to basically right-size our capacity to support the producer customers.
In response to Faisel's question, I believe it was, you had mentioned that you were offering support to MPLX by taking back units. At the end of the day, you're just a shareholder rather than the public being the shareholder and moves in equity overhang. Some of your peers have talked about multiples below 8 times. I noticed in the deck that you've got a drop multiple of 8 to 10 times. In the near term, while we're going through this turmoil in this space, would you consider a seven or 7.5 drop multiple for the next drop?
All of those things go into the equation. We'll always look at multiples. I'm not going to give you a number. We'll look at multiples, we'll look at drops, we'll look at debt, we'll look at taking back units. We'll look at all those different things. I can't give you a number today. I do recognize, if you look at the yield in the marketplace, and look at some other transactions that have been done, I do recognize that the multiples come down in some cases. Yes, we always evaluate that. Pardon?
You've got 8 to 10 as the multiple.
Right.
Is the 8 officially a floor? Is that how we should think about that, or can it go below that?
I just said that I will look at all the different numbers. I'm not giving you a floor or a ceiling. Brian? Right here. Right in front of you.
Gary, sticking on the capital markets theme, the potential of roughly $15 billion organic backlog. Assuming markets remain weak, roughly how do you think about incubating those, not just the incremental $6 billion-$9 billion, but actually the roughly one and a half billion a year of projects?
Tim?
Well, obviously, we will keep a close eye on where the markets are at. I think we would expect that there will be some equity funding into the partnership over time. Obviously, taking back units is not a
A structure that has sort of 10-year sustainability. We'll evaluate exactly where things are at. I think as we look at the growth, both the organic, the sort of billion and a half average within the business, as well as the additional, we will have the options to take it on at MPC potentially, make it available to partnership later, evaluation around multiples. We'll solve that equation. Again, I think the good news, and I think where we'd like to leave you with is that we've got a full tool set to do that with. We're not cornered into any one path. There's no force into a particular solution or not, and we'll evaluate those as we go forward.
On next year's funding, you've mentioned the drop will be likely all equity. For the roughly $1.7 billion of organic remaining, is that going to be more debt? How would you look at financing there? Just lastly, in a bear scenario of commodity prices do not recover as quickly as most of us anticipate, is there a tipping point on the guidance for growth? We've seen a lot of folks already revise guidance, but is there a tipping point where it doesn't really make sense to grow the mid-20% rate or would you just use your toolkit to meet that guidance however way is necessary?
Well, I'll invite Nancy to comment as well. I think the funding for 2016, taking back units for drops is a form. I think again, we'll utilize leverage where we can do so efficiently within the partnership. We can again, look at a number of different options on how we do that. That's a calculus that we'll solve again, as we go forward. I think we'll certainly, with the intent to manage the leverage profile within an investment grade construct, look at sort of utilizing that to its extent and then filling in behind it with the tools that are necessary around it.
I'd add to that point. Certainly over time, with the size of the partnership and the scale of the growth, there will be some need for public financing for sure. To the extent that we can manage that in this sort of a yield environment, we'll do everything we can. To echo Tim's point, we will use all the tools available, but it's going to be very important to look at the incremental cost to the partnership, the impact on the structure of MPC overall, and weigh all of that as we figure out how to go forward. There are so many different competing projects, making the decisions about the drop-downs, making those accretive. What projects to incubate at MPC versus to finance at the partnership level. There's all the different variables, and we're really digging into the modeling around all of that today.
TBD on a lot of it.
Brian, I'll finish by saying is, as you look at what we've laid out, we have a very strong line of sight of what our growth is going forward, and we can execute on that number. I never give you all a number that I don't expect that I know we can hit that number. If the market doesn't pay us for it, then we're probably not going to do it. I'm pretty confident that the market is going to turn around here, and the market will recognize the value that we have and the value we can grow. I go back to my point of it's quality of earnings and quality of EBITDA. We've illustrated today we have that quality, but also the market has to recognize that.
All of these things are in our toolkit, but I'm confident the market down the road will recognize that. I'll come back to you, Phil. Noah, you've had your hand up all day. Then John, we'll come back to you as well.
I know as an investor in the MLP or soon to be significant investor in the MLP come tomorrow, it's akin to investing almost in like a tracking stock. It's a subsidiary. It's not the parent that I'm investing in, so there's obviously a natural tension. I'm just trying to get an understanding is a lot of talk has been made, and comments have been made, I should say, regarding how incubation of projects will be done up at MPC for eventual drops. That's a little bit different to me than assets that Marathon already has that might drop.
I'm just curious, for things that are incubated at the parent to be dropped, do you envision those drops being done generally at a cost plus, or would it be where they can be constructed at a five times multiple and they get dropped at the 8 multiple-10 multiple, where there's a multiple expansion?
Yeah, I'm glad you asked that because we want to define that. Don, you and I just had a discussion on that last week. You want to cover that?
Yeah. I mean, I think our view, as you rightly said, if I have an asset at MPC, it's a cash-generating asset at MPC, and I'm going to give that asset up or relinquish some of that earnings power, you expect to be compensated as an MPC investor for that. Our original conversations with MarkWest were really around entering into joint venture opportunities where MPC might actually fund the project over time, and then once you got to cash generation, MarkWest would have the opportunity to buy at constructed cost or constructed cost plus carry, probably. I believe that our view around incubated projects would be consistent with that model that we talked about, had formulated at the time that we were thinking about joint venture rather than a combination. My view, existing cash flow, MPC shareholders get compensated for it.
If MPC is incubating something for the benefit of MPLX, I think you're probably more in a model of a constructed cost plus carry.
That goes back to Faisel's question. We're being very fair to both shareholders and unitholders in doing so. I promised you at the front, so we have about five minutes. We're going to take a few more questions, then we'll take some questions on the side if you want afterwards. Go to John, then over to Phil, we'll see where we stand.
Yeah, hopefully this is a quick one. John Edwards, Credit Suisse. Just to follow up Ed's earlier question on the counterparty risk, it's probably a question for Frank. Just could you remind us what is the risk in terms of investment grade versus non-investment grade credit? Then-
Embedded in that question is, should you see disruption to cash flows, are you assuming that you're going to have a little more EBITDA drop down from MPC to offset that possible risk?
Okay. Well, as far as the counterparty risk issue goes, the answer is yes. If you look at each individual producer customer's balance sheet and their ratings, when we actually develop a contract and agreement with those producer customers, we take that issue into account. If you look at the portfolio of customers right now, we have a range, as I said earlier, single B all the way up to investment grade. The best way to answer that question about how you're managing that risk and what is the result of managing that risk, it really is, we have factored in to our guidance, and now the combined guidance with MPLX, what we assume will be the liquidity capability to support the drilling programs for the producers.
For a single B producer, we basically have said, "Okay, we understand, producer, that you are planning on executing this sort of, let's say, a single rig drilling program." When we are developing our internal forecast, we are haircutting that, in some cases, down to basically zero growth because that producer, we don't feel is going to be able to finance that particular drilling program. It's all baked into the guidance. Now, just as I said on our third quarter earnings call, this is a critical time of the year right now because of the redeterminations, the borrowing base redeterminations, and the capital programs for the producer customers. Every quarter, we will do what we always do, and we will update the market in terms of really what the result of those capital programs and drilling programs are from the producers.
It's really rolled through the guidance. What was the second question, John?
To the extent there's some cash flow disruption because of the counterparty risk.
Yeah
I'm presuming you're augmenting that with perhaps additional EBITDA drop down than you would do otherwise.
Well, really, the first step is self-help. Whether we're part of MPLX or part of MarkWest standalone, we will continue. It's a DCF per unit equation, as you know. If you just look at our contributions to MPLX, the first step is not basically going, "Hey, you better drop your oil" or whatever. It's really what we can do to basically improve really the operating income through a combination of maybe you might work creatively with a producer customer because of downstream markets to do something special for that particular producer that's still net positive for us. Obviously, the just-in-time CapEx is really critical because it's a DCF per unit equation from a distribution growth standpoint. You will see MarkWest. Yes, we're a subsidiary of MPLX and a part of the combined company.
We are going to aggressively proceed with all kinds of options to make sure that we are cutting capital, cutting operating expenses, improving volumes to be able to make sure we're hitting our DCF per unit number. Overall DCF may be coming down or flattening out from our growth targets, but we're trying to hit those DCF per unit numbers. That being said, yes, I think that you have many options, several options in terms of how MPLX on a combined basis can hit those distribution targets, and those knobs are all out there.
All right. We're going to finish up with Phil and then Jeremy.
Hey there. Two questions. One is a clarification/follow-up for Tim. The comment was made during the presentation about 100% of free cash flow being returned to shareholders through the cycle. There have been some other questions about this already, but I just wanted to ask on 2016 specifically, given all the questions that have been asked, given that you'll take back the units most likely, is 2016 a year where it makes sense to return less than 100% of the free cash flow to shareholders, whether it's for parent company balance sheet preservation or growth funding?
Well, again, I think we were careful to say it's 100% of free cash flow through cycle. It's not defined by a quarter or by a six-month period, but sort of through the entire cycle. That will remain the target. Rather, in a given year, we want to sort of flex that down or up a little bit, I think remains to be seen based on the needs of the business and how the capital gets allocated. Rather '16, we're less than 100%. I think you've seen certainly, Phil, since we've spun, we've done way more than 100%. We've been at probably 130% based on the free cash flow generation of the business. We'll see. This is something that adjusts over time, and when we say 100%, what we mean is that over a time period, that would be our expectation.
Follow-up is for Gary. Your commentary on the macro environment on refining. I just thought I'd ask a quick follow-up on that around your view on the crude price recovery in the second half of the year. You talked about strong refined product demand in the first half of the year. If we have a crude price recovery in the second half of the year, given that the profitability in refining has moved more from crude differentials to the product crack spreads, do you worry at all in the second half of the year that if crude prices recover, we could see a contraction in refining margins given the elasticity response we've seen in the lower price environment?
Right. At the end of the day, as Don illustrated in his first slide, we're always a spread business. Granted, we got a big help when the prices decline and a stickiness on the margins coming down. I'll come back to Phil on how robust the global export market continues to be. I believe if you see an uptick in crude price I think you're going to see European refining struggle a little bit, and I think which is going to put more U.S. distillate because of our manufacturing efficiency and then the natural gas advantage we have. I think you're going to see more requirements on U.S. refining in order to be able to satisfy those markets. It's something we definitely will have our eye on, have our eye on already.
I know how all these equations work, but I don't think it should have near. It's not going to be a spike, it's going to be a gradual move. If it's a gradual move, it's Tony's job to get the price to the street. If we get that gradual move and get the price to the street, and still $60, $65 is not that big of a Not from where price is today. I think it'll be a gradual move throughout the year. The thing I'd watch is watch inventories between now and February, March. I think crude oil inventories are going to continue to build, which is going to give us continued support. You're going to have big turnarounds between now and all the way through the second quarter as you go from the Gulf Coast turnarounds, then you get into the Midwest turnarounds.
I think that's going to be bullish, but I think it'll be a gradual move. I'd watch the spring OPEC meeting as kind of the first indicator. Jeremy?
Thanks. Just two real quick questions here. At the risk of beating a dead horse, just as far as the drop-down multiples are concerned, I think you had discussed in the past one of the strengths of a sponsored vehicle is the ability to adjust the drops to kind of back solve to hit your growth targets. I think you had talked about that in the past. I'm just wondering if that's still kind of. It's one of many tools. Is that still how you view that tool, or any thoughts there?
Yes.
Great. Thanks. Then on slide 84, I think you talk about the growth investments there. For MPLX, it looks like it's about a billion and a half through 2018 through 2020. I'm wondering, does that include the $6 billion-$9 billion of Okay, that's not in there. I'm just wondering if we were thinking.
I can ask Nancy to come out. Nancy, you want to answer that?
Yeah, absolutely. MarkWest has typically had a $1.5 billion-$2 billion run rate per year in CapEx, the $6 billion-$9 billion is incremental on top of that.
For that $6 billion-$9 billion, I'm just wondering, some of them you don't have great clarity on, but how do you see that kind of materializing over time if we're going to be baking that into our models? Is that more of a 2016, 2017 spend or 2018, 2019, 2020 spend? Any help there would be great.
A number of those projects are still in an engineering design analytics phase. As they become closer to fruition, we'll give you a lot more information about timing, where they'll be financed, and all of those sorts of things. It's just a little early. A lot of these are really projects that have come out of joint discussions between the two entities. Some of them are much farther down the road, we're not quite ready for prime time on a number of them.
Yeah, if you want to model it, think of a kind of an elongated bell curve. The front end, we're already in pre-engineering, conceptual engineering on the Alkylate project, some conceptual engineering on a few other things. The first year, 18 months, you'll be doing engineering, then you're kind of elongated as those projects start to come on. Six to nine, you take that over five years, that's what? One and a half billion or so on average. If you think seven and a half. Kind of an elongated bell curve is how you would bring those on. It's going to take you a couple of years of engineering and permitting to be able to get those done.
Gary.
Paul.
I'm sorry, go ahead.
I'm sorry, go ahead.
Well, just before we leave the topic, I know we've had a lot of questions about drop-downs, I mean, drop-down multiples. If I might maybe declare, a lot of the MWE unit holders aren't used to this process. I might just remind everybody or clarify to everybody that the reason we're talking about the multiples, drop-down multiples as really just a range right now, it's a process that we will go through, the MPLX board will go through, and the conflicts committee will go through to look at the value. The independent advisor, financial advisor will look at this and basically say, what is fair to MPLX? There is a process that we go through, and it does have a wide range of potential outcomes, depending on what you're looking for is accretion, and it has to be fair.
You're looking at the quality of the earnings, you're looking at the capital cost, you're looking at the financing considerations, and it will go through a process. This is not a cram down. MPLX is acquiring EBITDA on a full run rate basis, that has a lot of value. That's why we can't give you a number right now what it is. It'll be a very individual on a project-by-project basis determination is what's fair. Is that fair?
Fair.
Okay.
All right. Well, thank you everyone. I appreciate your attention today. I wish you all happy holidays, Merry Christmas, and most importantly, be safe. Thank you.