MPLX LP — Form 10-Q Summary
Business context and reporting period
Quarter ended September 30, 2012. The financial statements cover MPLX LP Predecessor, not the post-IPO Partnership, and reflect assets and operations before the October 31, 2012 IPO and related transactions. The predecessor operated crude oil and product pipelines and associated storage in the Midwest and Gulf Coast. Results may not represent MPLX LP’s subsequent stand-alone results.
Financial performance and liquidity
| Metric (millions, except volumes and margins) | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Total revenues and other income | $121.1 | $109.3 | $333.6 | $306.5 |
| Income from operations | $36.3 | $39.1 | $100.7 | $107.4 |
| Net income | $36.9 | $39.3 | $101.9 | $109.3 |
| Adjusted EBITDA | $45.7 | $48.8 | $128.5 | $134.8 |
| Operating margin | 30.0% | 35.8% | 30.2% | 35.0% |
| Net cash from operating activities | — | — | $121.8 | $141.6 |
At September 30, cash was $68.5 million, current assets $152.5 million and current liabilities $62.6 million. Debt totaled $11.4 million ($0.7 million current). Capital expenditures for the first nine months were $120.8 million, including $106.0 million of expansion spending. Cash provided by investing activities was $112.6 million, primarily reflecting $221.7 million collected from related-party loans; financing activities used $166.0 million, mainly distributions to MPC.
Material changes versus prior comparable period
- Q3 revenue rose $11.8 million, but operating income fell $2.8 million and net income fell $2.4 million. For nine months, revenue increased $27.1 million while operating income declined $6.7 million and net income declined $7.4 million.
- Higher average tariffs supported revenue, but lower shipment volumes partly offset the gains. Q3 total pipeline throughput declined 153 thousand barrels per day (mbpd) to 2,180 mbpd; nine-month throughput fell 117 mbpd to 2,122 mbpd.
- Cost of revenues increased $13.8 million in Q3 and $21.7 million for nine months, largely because of outside services and pipeline mechanical-integrity work. Nine-month G&A increased $11.0 million, including pension-settlement costs and higher MPC allocations.
- Expansion capital spending increased substantially year over year, principally for the Patoka-to-Catlettsburg crude pipeline upgrade.
Outlook, transactions, and risks
- The October 31 IPO raised $404.3 million net. MPLX retained $10.0 million for working capital and contributed $191.6 million toward expansion expenditures; $202.7 million was distributed to MPC. MPC retained a 71.6% limited partner interest, the incentive distribution rights and a 2.0% general partner interest.
- Management intended an initial quarterly distribution of $0.2625 per unit ($1.05 annualized). The 2012 capital budget was $147.5 million: $27.3 million maintenance and $120.2 million expansion. These are stated plans, not a guarantee of future distributions or spending.
- Post-IPO, a $500 million five-year revolving facility became available, with potential capacity increase to $800 million; no borrowings or letters of credit were outstanding. Its leverage covenant generally caps debt/Consolidated EBITDA at 5.0x, subject to specified acquisition relief.
- Long-term, fee-based transportation and storage agreements with MPC include minimum volume commitments and deficiency payments, supporting cash-flow visibility. However, MPC represented 82% of predecessor revenues and other income in the first nine months of 2012. Certain agreements permit MPC to reduce, suspend or terminate obligations in specified circumstances, including prolonged refinery shutdowns or force majeure.
- Post-IPO comparability is affected by the contribution of only a 51% general partner interest in Pipe Line Holdings, exclusion of predecessor joint-interest assets, addition of the Neal butane cavern, new MPC commercial agreements and anticipated higher stand-alone costs. MPLX also disclosed approximately $31.8 million of initial annual G&A and management service payments to MPC, subject to additional reimbursements and charges.
- Environmental remediation accruals were $2.0 million, with up to $0.5 million of reasonably possible additional loss identified. A PHMSA matter resulted in an $842,650 penalty paid and a safety/environmental project with minimum cost of $305,000. A separate Illinois environmental contribution lawsuit remained unresolved; MPC agreed to indemnify MPLX for covered losses. Contractual commitments for property and equipment were $11.4 million.
- Commodity-price exposure was described as minimal because MPLX does not own or trade transported products. Future borrowings would expose it to variable-rate risk. FERC regulates tariffs on common-carrier pipelines; environmental compliance, throughput changes and reliance on MPC are material business risks.
Key facts for investors to verify
- Compare the predecessor’s historical results with post-IPO reported results, including the 49% noncontrolling interest and assets excluded from the Partnership.
- Confirm actual distribution coverage, cash available for distributions, maintenance capital needs and execution of the stated capital program.
- Track MPC’s committed and actual volumes, its share of revenue, and any changes to the commercial agreements or refinery operations.
- Review actual stand-alone and MPC-related costs, the revolving facility’s borrowings and covenant headroom, and future debt levels.
- Monitor pipeline throughput, tariff changes, mechanical-integrity spending, environmental exposures and the resolution of pending legal matters.