MPLX LP — 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013; filed February 28, 2014. The filing also reports fourth-quarter 2013 results. MPLX is a fee-based midstream partnership whose principal assets are crude-oil and refined-product pipelines, storage facilities and a barge dock. Its results are consolidated with Pipe Line Holdings, in which MPLX held a 56% interest at year-end. Comparisons with 2012 require care: MPLX completed its IPO on October 31, 2012, and historical results include predecessor operations and different ownership interests.
Financial and operating performance
| Metric | 2013 | 2012 |
|---|---|---|
| Total revenues and other income | $486.3 million | $461.9 million |
| Income from operations | $147.0 million | $143.2 million |
| Consolidated net income | $146.1 million | $144.0 million |
| Net income attributable to MPLX LP | $77.9 million | $130.8 million |
| Operating cash flow | $212.2 million | $190.6 million |
| Capital expenditures | $109.5 million | $148.0 million |
| Cash and cash equivalents at year-end | $54.1 million | $216.7 million |
| Total debt, principally capital lease obligations | $10.5 million | $11.3 million |
- Fourth quarter: Revenue was $118.9 million, operating income $36.5 million, net income $36.8 million and net income attributable to MPLX LP $20.2 million. Common and subordinated limited partner net income per unit was $0.27.
- Non-GAAP measures: Adjusted EBITDA attributable to MPLX LP was $111.2 million and distributable cash flow was $114.6 million. The filing’s 2012 figures—$166.3 million and $16.7 million, respectively—are not directly comparable because they include differing pre- and post-IPO periods and ownership interests.
- Throughput: Crude-oil volumes averaged 1.063 million barrels per day, up from 1.029 million in 2012; product volumes averaged 911,000 barrels per day, down from 980,000. Average pipeline tariff rates increased to $0.59 per barrel from $0.54.
- Cash distribution: Distributions declared totaled $1.1675 per common unit for 2013. The fourth-quarter distribution was $0.3125 per unit, declared in January 2014 and paid February 14, 2014.
Changes versus the prior period
- Revenue and other income rose $24.4 million, or about 5%, and operating income increased $3.8 million. Higher tariffs, storage fees and operating fees supported revenue; lower crude-oil volumes and reduced product shipments partly offset the gains.
- Consolidated net income increased $2.1 million, but MPLX-attributable net income fell $52.9 million. The filing attributes the difference in part to a larger share of earnings allocated to MPC’s retained noncontrolling interest, following MPLX’s increase in its Pipe Line Holdings ownership from 51% to 56% in May 2013. IPO-related accounting and period differences also affect comparisons.
- Operating cash flow improved by $21.6 million. Investing used $113.6 million, including $106.5 million of property, plant and equipment additions; financing used $261.2 million, including distributions and the $100 million purchase of an additional 5% Pipe Line Holdings interest.
- Year-end cash declined by $162.6 million, reflecting investment and financing outflows. Product throughput decreased while crude throughput increased.
Outlook, risks and unusual items
- Growth and spending: Management budgeted $148 million of 2014 capital spending, including $113 million for expansion and $35 million for maintenance. MPLX planned the approximately $140 million Cornerstone Pipeline to connect Utica Shale production in southeastern Ohio to MPC’s Canton refinery, with service anticipated in 2016.
- Subsequent acquisition: On February 27, 2014, MPLX agreed to acquire another 13% of Pipe Line Holdings from MPC for $310 million, effective March 1, 2014. The planned funding was $40 million of cash and $270 million drawn on the revolver, increasing MPLX’s interest to 69%.
- Distribution outlook: MPLX stated an intent to maintain a minimum quarterly distribution of $0.2625 per unit and pursue distribution growth, but emphasized that distributions are not guaranteed. Distributions depend on available cash, reserves, capital needs, debt terms and operating performance.
- Liquidity and leverage: The $500 million revolving credit facility was undrawn at year-end; MPLX reported a 0.1-to-1.0 debt-to-Consolidated-EBITDA covenant ratio against a 5.0-to-1.0 limit. The planned acquisition borrowing would materially increase revolver usage.
- Customer concentration: MPC accounted for approximately 82.6% of 2013 revenue and other income under the filing’s stated calculation. Long-term, fee-based contracts include minimum-volume commitments and deficiency payments, but MPC may reduce or suspend obligations in specified circumstances, and MPLX remains exposed to MPC’s operating and financial condition.
- Other risks: Key exposures include pipeline incidents and outages, environmental and safety regulation, tariff challenges, changing shipment patterns and refining conditions, interest rates, acquisition execution, and conflicts arising from MPC’s control and ownership. MPC controls MPLX’s general partner and held a 73.6% partnership interest as of February 14, 2014.
- Contingencies: Environmental remediation liabilities were $1.1 million at year-end, with up to $0.4 million of reasonably possible loss above accruals disclosed. The EPA matter concerning the Woodhaven facility involved a tentatively agreed $23,200 penalty and an $87,000 supplemental safety project; MPC agreed to indemnify MPLX. MPLX said it could not estimate a possible loss for certain Illinois environmental litigation, but MPC agreed to indemnify MPLX for any damages assessed in that case.
- Controls and audit: Management and the auditor reported effective internal control over financial reporting as of December 31, 2013; the auditor issued an unqualified opinion on the financial statements.
Important facts for investors to verify
- Reconcile the sharp decline in MPLX-attributable net income with consolidated net income, noncontrolling-interest allocations and the 2013 ownership change; do not treat full-year 2012 as a directly comparable public-partnership period.
- Review the composition and timing of the $34.0 million year-end deferred revenue balance from MPC deficiency payments, including make-up credits expiring during 2014 and their effect on future cash flow and reported revenue.
- Assess MPC’s revenue concentration, contract minimums, renewal terms and provisions allowing suspension or reduction of commitments.
- Confirm financing, covenant headroom and expected distribution coverage after the $310 million Pipe Line Holdings acquisition and planned 2014 capital program.
- Track Cornerstone Pipeline cost, schedule, permits, customer commitments and expected returns, alongside throughput trends and the ability to attract third-party business.
- Review environmental remediation estimates, indemnity coverage and any developments in the Illinois litigation or other regulatory matters.