Two California Refiners Reveal Windfall Profits For 2022, Continuing In Footsteps of Chevron, Consumer Watchdog Says

LOS ANGELES, Jan. 31, 2023 -- Marathon Petroleum made 75 cents in profit per gallon off West Coast drivers in 2022, virtually doubling what it made the year before, strengthening the case for the California legislature to enact a windfall profits penalty. Meanwhile Phillips 66 reported fourth quarter West Coast results indicating a moderating influence simply from the threat of a windfall profits cap, Consumer Watchdog said today. 

Four out of the five big California refiners have now reported profits of $72.5 billion for the year. (Chevron, Marathon, Valero, and Phillips 66.)

"These profit reports show that oil refiners are taking note of the debate around the windfall profits rebate and letting up on their profiteering in the fourth quarter after the Governor announced the special session to deal with problem," said Jamie Court, President of Consumer Watchdog. "Still, last year's greed at the pump was palpable. If a windfall profits cap had been in effect in 2022, Marathon would have had to return $735 million to overcharged consumers."

The legislature is considering legislation, SBx1 2 (Skinner) to establish a windfall profits cap on how much oil refiners can make in profit per gallon of gasoline. Consumer Watchdog has suggested penalties kick in after 50 cents per gallon. If the legislation was in force, Marathon would be on the hook for a rebate to consumers for $735 million for the year if the cap was set at 50 cents per gallon. Phillips 66 would owe $246.7 million rebate to consumers for its profiteering in previous quarters. The total owed by four of California's five refiners would be over $3.3 billion. (PBF Energy reports on February 16.)

Historically, over the last 20 years, California refiners have made an average profit of 35 cents per gallon and have only exceeded the 50-cent mark three times. See slide 5 here.

Windfall profit taking is likely to continue over the next year thanks to shrinking refining capacity globally as demand for gasoline and jet fuel comes roaring back in the wake of the pandemic, Marathon CEO Michael Hennigan told Wall Street analysts today. "We believe that the current supply constraints and growing demand will support strong margins in 2023." Meanwhile, he said the company returned nearly $12 billion in share repurchases during the year, bringing the total spent on repurchases to $17 billion since May 2021.

Overall, the company reported net income of $3.3 billion for the fourth quarter over $774 million for the same quarter the year before and $14.5 billion for 2021, over $9.7 billion for 2021.

Marathon reported that it made $28.63 in margins per barrel in the fourth quarter off West Coast drivers and $31.87 for the year 2021. That was double the $16.06 it reported for 2022. That came to 68 cents per gallon for the fourth quarter and 75 cents per gallon for the year. In 2021, the company made 38 cents per gallon, in line with historical averages.

Consumer Watchdog calculates profits per gallon by dividing the reported refining margin for the year of $35.80 per barrel by 42, the number of gallons in a barrel of oil. Refining margins reflect the difference between what a refinery pays for crude versus what it charges for finished products.

Together with Phillips 66, Marathon controls 36% of California's gasoline market. Phillips 66 today reported fourth quarter earnings of $1.9 billion compared to $1.3 billion for the same quarter last year. It reported $11 billion in 2022 net income compared to $1.3 billion for 2021.

On the West Coast, Phillips made 39 cents per gallon (on a margin per barrel of $16.77) in the fourth quarter—in line with historical averages after posting third quarter margins per barrel of $28.64 for the West, or 68 cents per gallon. For the year, it made 57 cents per gallon (on a margin per barrel of $24.31) compared to 18 cents per gallon (on a margin of $7.70) for all of 2021. And it's profits per gallon in the fourth quarter for the West Coast, for the first time this year, were less than other regions except for one.

Under a new law, SB 1322 (Allen), the Oil Refiner Price Disclosure act, Chevron and other California refiners will be required to report monthly the cost of the crude oil they buy versus the wholesale price of the gasoline they sell and their profits made per gallon. This reporting requirement, designed for transparency in gasoline pricing, will produce data in closer to real time and will be reported to the California Energy Commission starting in March. 

SOURCE Consumer Watchdog