MPLX LP — Q1 2014 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2014; comparisons are with Q1 2013 unless otherwise noted. MPLX is a fee-based midstream partnership transporting and storing crude oil and refined products. Effective March 1, it acquired an additional 13% interest in Pipe Line Holdings from Marathon Petroleum Corporation (MPC), increasing its interest to 69%. MPC remains the principal customer and related party.
Financial and operating highlights
| Metric | Q1 2014 | Q1 2013 / prior balance |
|---|---|---|
| Revenue and other income | $137.3 million | $114.7 million |
| Operating income | $56.3 million | $35.5 million |
| Net income | $55.7 million | $35.3 million |
| Net income attributable to MPLX | $34.2 million | $17.6 million |
| Limited partner net income per unit | Common $0.41; subordinated $0.41 | Common $0.26; subordinated $0.21 |
| Adjusted EBITDA attributable to MPLX | $43.8 million | $25.1 million |
| Distributable Cash Flow attributable to MPLX | $37.7 million | $28.0 million |
| Operating cash flow | $71.9 million | $46.7 million |
| Capital expenditures | $5.4 million | $12.6 million |
| Cash at period end | $40.6 million | $54.1 million at Dec. 31, 2013 |
Revenue increased about 20% and operating income about 59%. Related-party sales rose $24.7 million, partly reflecting higher tariffs and $16.6 million of recognized volume-deficiency credits; third-party operating revenue declined $3.9 million. Total pipeline throughput fell to 1.801 million barrels per day from 1.993 million, while average tariff rates increased from $0.56 to $0.65 per barrel. No separate margin metric is stated in the filing.
Debt, liquidity, and distributions
The partnership borrowed $270 million on its revolving credit agreement to help fund the $310 million interest purchase; the remainder came from cash. At March 31, total borrowings were $280.4 million, including $10.4 million of capital lease obligations. Revolver availability was $230 million; an additional $50 million MPC-affiliate revolving facility was undrawn. The partnership reported a 2.2-to-1 debt-to-Consolidated-EBITDA covenant ratio and compliance with its covenants. Financing activities used $78.8 million, including acquisition-related distributions, and cash declined $13.5 million during the quarter.
Cash distributions paid during the quarter totaled $23.7 million to unitholders and the general partner, plus $14.9 million to MPC’s retained noncontrolling interest. The board declared a subsequent quarterly distribution of $0.3275 per unit, payable May 15, 2014, up 4.8% from Q4 2013.
Changes, outlook, and risks
- The ownership increase was recorded at historical carrying value; the $172.5 million excess of consideration over that value reduced general partner equity. The transaction was funded with $40 million cash and $270 million revolver borrowings.
- Management’s initial 2014 capital budget was $148 million: $113 million expansion and $35 million maintenance. The partnership stated it expected operating cash flow, credit facilities, and potential debt and equity issuance to support liquidity, capital needs, and distributions. It intends to maintain at least the $0.2625 minimum quarterly distribution; future distribution growth is not guaranteed.
- MPC failed to meet minimum shipment commitments in Q1. MPLX recorded an $11.1 million deficiency payment as deferred revenue; credits used during the quarter generated $16.6 million of revenue. Deferred revenue related to deficiencies was $28.5 million at quarter-end, scheduled to expire from June 2014 through March 2015.
- Revenue and operations are highly related to MPC: MPC accounted for 86.4% of revenue and other income in Q1 2014. The filing cites risks including changes in MPC’s contractual obligations, lower volumes, competition, operational interruptions, capital-project execution, financing availability, and environmental regulation.
- Environmental remediation accruals were $1.1 million, with up to $0.4 million of reasonably possible additional loss identified. A pending Illinois environmental contribution lawsuit has an indeterminable potential loss; MPC agreed to indemnify MPLX for any damages for which it is responsible. Contractual commitments to acquire property, plant, and equipment were $12.8 million.
- Management reported effective disclosure controls. An ERP system was implemented during the quarter, changing certain internal controls; no other material control changes were reported. The filing identifies no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether throughput trends, higher tariffs, and volume-deficiency credits support recurring revenue and cash generation.
- MPC’s continued compliance with minimum-volume commitments and the concentration of customer, service, and related-party exposure.
- Post-acquisition leverage, revolver availability, covenant headroom, and the terms and availability of the MPC-affiliate facility.
- Execution and funding of the $148 million 2014 capital budget, and the sustainability of the declared distribution relative to distributable cash flow.
- Timing and recognition of deferred deficiency credits, plus outcomes and exposures from environmental matters and litigation.
Adjusted EBITDA and Distributable Cash Flow are non-GAAP measures; the filing cautions they should not be viewed as substitutes for GAAP results or operating cash flow. Q1 results are not necessarily indicative of full-year performance.