MPLX LP — Form 10-Q Summary
Reporting period: Three months ended March 31, 2013. MPLX LP, formed by Marathon Petroleum Corporation (MPC), owns and operates crude oil and refined-products pipelines, storage assets and a butane cavern. The Partnership completed its IPO in October 2012 and held a 51% general partner interest in Pipe Line Holdings at quarter-end. Because 2013 results reflect the Partnership’s post-IPO ownership and agreements while 2012 results are those of its predecessor, year-over-year comparisons are not fully comparable.
Financial and operating results
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Total revenue and other income | $114.7 million | $102.1 million |
| Operating income | $35.5 million | $34.9 million |
| Net income | $35.3 million | $35.2 million |
| Net income attributable to MPLX LP | $17.6 million | $35.2 million |
| Adjusted EBITDA attributable to MPLX LP | $25.1 million | $44.1 million |
| Distributable Cash Flow attributable to MPLX LP | $28.0 million | Not presented |
| Operating cash flow | $46.7 million | $50.4 million |
| Capital expenditures | $12.6 million | $19.6 million |
- Revenue rose $12.6 million, including increases in third-party and related-party sales. Higher average tariffs and storage fees were partly offset by lower related-party crude volumes.
- Operating costs increased $12.0 million. Related-party purchases and general and administrative expenses rose, partly reflecting employee services and public-company costs; cost of revenues and other taxes declined.
- Net income for the consolidated business was nearly unchanged, but MPLX-attributable income and Adjusted EBITDA declined principally because MPC’s retained interest was deducted after the IPO. The filing cautions that predecessor comparisons are not like-for-like.
- Pipeline throughput was 1,993 thousand barrels per day, versus 2,038 thousand in the predecessor period; crude throughput declined by 45 thousand barrels per day and product throughput was unchanged. Average tariff rates increased to $0.56 per barrel from $0.50.
Balance sheet, liquidity and distributions
- Cash was $227.9 million at March 31, up from $216.7 million at December 31, 2012. Total current assets were $295.7 million and current liabilities $64.6 million.
- Total debt was $11.1 million, consisting of a capital lease obligation; no borrowings or letters of credit were outstanding under the $500 million revolving facility. The Partnership reported a 0.1-to-1.0 debt-to-Consolidated-EBITDA covenant ratio, against a 5.0-to-1.0 limit, and stated it was in compliance.
- Operating cash flow was lower year over year, primarily due to less favorable working-capital movements. Cash used in investing was $9.2 million; financing used $26.3 million, including distributions to unitholders and the noncontrolling interest. Cash increased $11.2 million overall.
- The Partnership declared a quarterly distribution of $0.2725 per unit, totaling $20.5 million, payable May 17, 2013. Management stated an intended minimum quarterly distribution of $0.2625 per unit, while noting there is no legal obligation to distribute a particular amount per common unit.
Outlook, risks and notable items
- The original 2013 capital budget was $142.5 million, including $109.3 million for expansion and $33.2 million for maintenance. It included a major Patoka-to-Catlettsburg pipeline upgrade. The budget was increased by $100 million for the subsequent purchase of an additional 5% interest in Pipe Line Holdings.
- On May 1, 2013, MPLX completed that $100 million cash acquisition from MPC, funded with cash on hand, raising its Pipe Line Holdings interest to 56%.
- MPC did not meet certain minimum committed pipeline volumes in Q1. MPLX recorded a $9.2 million deficiency payment as deferred revenue; it expects to recognize revenue when excess-volume credits are used or expire. Such payments are included in Distributable Cash Flow when incurred, not in current-period Adjusted EBITDA.
- MPC accounted for 80.6% of Q1 revenue and other income and 42.4% of costs and expenses. This significant related-party dependence, including service arrangements and minimum-volume commitments, is an investor consideration.
- Management cited exposure to capital-project execution, operating disruptions, labor and equipment costs, approvals, environmental requirements, and financing-market conditions. Commodity-price exposure is described as minimal because MPLX transports and stores customer-owned products; potential variable-rate debt creates interest-rate exposure.
- Environmental remediation liabilities were $1.4 million, with an estimated reasonably possible additional loss of up to $0.4 million. The filing describes pending environmental litigation for which loss could not be estimated; MPC agreed to indemnify MPLX for any liability in the identified Illinois matter. Contractual commitments to acquire property, plant and equipment were $53.0 million, primarily for the pipeline upgrade.
- Management reported effective disclosure controls as of March 31, 2013 and no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- How the post-IPO ownership structure and MPC’s retained interest affect comparisons of MPLX-attributable earnings, EBITDA and cash flow with predecessor results.
- Whether MPC meets minimum volume commitments and how deferred deficiency payments convert into recognized revenue and distributable cash flow.
- Execution, cost and timing of the Patoka-to-Catlettsburg upgrade and the broader capital program, including funding after the $100 million acquisition.
- The sustainability of distributions relative to distributable cash flow, maintenance spending and cash retained for growth.
- Ongoing related-party concentration, service costs, and the terms and renewal provisions of MPC commercial agreements.
- Potential environmental, legal and guarantee exposures, including matters for which the filing says losses cannot currently be estimated.