MPLX LP — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; filed August 2, 2022. MPLX is a midstream partnership with Logistics and Storage (L&S) and Gathering and Processing (G&P) segments. Amounts are U.S. dollars unless stated otherwise.
Financial and operating performance
- Q2 revenue and income: Revenue and other income was $2.940 billion, up $545 million (about 23%) year over year. Operating income rose to $1.117 billion from $931 million; net income was $884 million versus $715 million, and net income attributable to MPLX was $875 million versus $706 million. Common-unit earnings were $0.83, up from $0.66.
- Margins: Calculated GAAP operating margin was approximately 38.0% versus 38.9%; net margin was approximately 30.1% versus 29.9%. Higher purchased-product costs materially increased alongside product-related revenue.
- Segment results: Q2 Segment Adjusted EBITDA was $966 million for L&S (up from $947 million) and $491 million for G&P (up from $427 million). Total Adjusted EBITDA attributable to MPLX was $1.457 billion, up from $1.374 billion.
- Cash flow and distributions: Q2 operating cash flow was $1.487 billion. Non-GAAP free cash flow after distributions was $614 million, compared with $481 million a year earlier. DCF attributable to general and limited partner unitholders was $1.206 billion versus $1.219 billion; reported distribution coverage was 1.69x. The declared Q2 common distribution was $0.7050 per unit, compared with $0.6875.
- First-half results: Revenue and other income was $5.550 billion versus $4.734 billion; net income attributable to MPLX was $1.700 billion versus $1.445 billion. Operating cash flow was $2.612 billion versus $2.489 billion, while free cash flow after distributions was $706 million versus $758 million.
- Debt and liquidity: At June 30, aggregate senior-note principal was approximately $20.1 billion; $1.0 billion of debt was due within one year. Cash was $298 million. Reported liquidity was $5.298 billion, including the then-existing $3.5 billion revolving facility, $1.5 billion MPC loan capacity and cash. The debt-to-Consolidated-EBITDA covenant ratio was 3.54x, within the 5.0x limit.
Changes, outlook and material matters
- Q2 growth was principally driven by higher G&P commodity prices and volumes; management attributed about $466 million of the quarterly revenue increase to these factors. G&P product-related revenue increased $453 million. Higher prices and volumes also increased purchased-product costs by $325 million.
- Management reported improved throughputs and higher natural gas and NGL prices, while noting higher labor and materials costs and uncertainty from inflation, fuel prices, COVID-19 developments, and the Russia-Ukraine conflict. It emphasized capital discipline, a low-cost culture and portfolio optimization. The filing provides no specific earnings or full-year financial guidance.
- Capital spending and investments in affiliates were higher: first-half additions to property, plant and equipment were $294 million versus $235 million, and investing cash outflow was $411 million versus $245 million. The initial 2022 capital investment plan totaled $900 million, including $700 million growth capital, $140 million maintenance capital and a $60 million Bakken Pipeline joint-venture debt repayment contribution.
- In March 2022, MPLX issued $1.5 billion of 4.950% senior notes due 2052; proceeds repaid amounts under the MPC intercompany loan and revolving facility. On July 7, after quarter-end, MPLX replaced its $3.5 billion revolving facility with a $2.0 billion facility maturing in 2027. The MPC loan agreement has $1.5 billion capacity and may be callable by MPC before its July 2024 maturity.
- MPLX and MPC amended six transportation services agreements on June 30, extending them through 2032, with automatic renewal options for up to two additional five-year terms. MPC owned approximately 64% of common units and accounted for 45% of Q2 revenue and other income.
- The board authorized an additional $1 billion unit-repurchase program on August 2; $202 million remained under the previous authorization at June 30. Environmental remediation accruals were $27 million, up from $23 million at year-end, and management cited increased remediation costs following a March crude-oil release near Edwardsville, Illinois.
- Contingencies: MPLX’s 9.19% indirect Bakken Pipeline interest is subject to a contingent equity contribution agreement; maximum potential undiscounted payments were approximately $170 million if specified shutdown-related events occur. The pipeline remained operational, but litigation over the Lake Oahe easement and environmental review could continue. Separately, U.S. Government parties assert trespass and ejectment counterclaims concerning a pipeline crossing the Fort Berthold Reservation, seeking profits, pipeline removal and remediation; the filing does not provide a clear estimate of potential exposure.
Important facts for investors to verify
- Whether higher commodity prices and G&P volumes persist, and how product-price-related revenue and purchased-product costs affect underlying cash generation.
- Post-refinancing borrowing availability and the implications of the smaller revolving facility, debt maturities and MPC’s demand rights under its loan agreement.
- Distribution and repurchase sustainability relative to DCF, capital needs and the partnership’s stated liquidity sources.
- Developments in the Bakken Pipeline easement proceedings and Fort Berthold Reservation litigation, including any change in MPLX’s potential funding or remediation obligations.
- Execution of the 2022 capital plan and potential effects of inflation, environmental requirements, operating interruptions and reliance on MPC-related commercial arrangements.