Despite a sharp decline in profitability during the third quarter, major U.S. refiners Marathon Petroleum, Valero and Phillips 66 continued to prioritize shareholder returns. Together, they distributed approximately $5.2 billion through dividends and share buybacks, underlining their confidence in long-term fundamentals even as refining margins deteriorated.
Marathon Petroleum accounted for the lion’s share of the payouts, returning around $3 billion to shareholders and expanding its share repurchase authorization by $5 billion. Chief Executive Maryann Mannen emphasized that the company remains “committed to leading our peers in capital returns through all parts of the cycle.” Marathon processed a record 3 million barrels per day with utilization near 94%, well above prior guidance, yet saw its refining margin collapse to $14.35 per barrel from $26.16 a year earlier. Net income fell steeply from $3.5 billion in Q3 2023 to $622 million, an 82% drop, though the midstream unit posted strong cash flow over $1.6 billion, offering some offset.
Valero returned $907 million to investors—remarkable given its 86% plunge in Q3 earnings. The company endured heavy maintenance during a weak margin environment but remains optimistic that refined product demand, notably diesel exports to Latin America, may provide some relief.
Phillips 66 delivered around $1.3 billion in shareholder returns, despite seeing its profit drop to $346 million from $2.1 billion a year ago. The company attributed the decline to weak refining margins—about $8.31 per barrel—and costs associated with closing its Los Angeles refinery. Nevertheless, earnings in its chemicals and midstream segments rose, helping cushion the blow.
The broader context reveals that refiners collectively saw average earnings per share drop to just $0.25, down from $4.75 in Q3 2023. Fuel demand softened significantly, and the refinery “crack spreads” for gasoline and diesel narrowed to their lowest levels in years. Despite this, free cash flow remained positive, enabling stable capital returns for shareholders.
This strategic decision to continue payouts amidst margin pressure underscores executives’ confidence in cyclical recovery. Their approach is guided by the belief that balanced capital deployment—combining returns with prudent reinvestment—will preserve market trust and align shareholder interests with long-term growth.
That said, industry analysts caution that the weak margin environment may persist into the fourth quarter and beyond. Global refining capacity increased in 2024, while demand growth stalled, especially in China and Europe. Some major majors, including Chevron and Exxon, have signaled continued margin pressure through early 2025 . In this landscape, refiners may need to adjust their capital return programmes if profitability remains constrained.
Underlying these dynamics, companies like Phillips 66 and Marathon have leaned on their midstream and chemicals businesses to stabilize cash flow. These non-refining segments helped offset some of the refining losses—highlighting the value of diversified operations. Marathon’s midstream division generated robust adjusted earnings of $1.6 billion, and Phillips 66 similarly saw its chemicals business post a $342 million adjusted profit.
Looking ahead, refiners must balance near-term capital discipline with potential funding for maintenance, upgrades or expansion. Marathon has about $8.5 billion remaining under its buyback authorization, but is also investing heavily in refining, marketing, and midstream infrastructure. Meanwhile, Valero and Phillips 66 face the challenge of maintaining shareholder trust if profits fail to recover.
The refining industry now enters a pivotal phase. As broader macroeconomic pressures continue to challenge margins, executives face tough decisions on balancing payouts with capital budgeting. The resilience of cash flows beyond the refinery units will likely be a decisive factor in preserving shareholder confidence and strengthening strategic flexibility.
In the short term, investors should monitor crack spread trends, global demand recovery (especially in key export regions), and any signals from management on adjusting payout levels. In the longer view, continued investment in midstream and chemical operations may provide a buffer that supports consistent shareholder return strategies—even as refining margins cycle through headwinds.
