MPLX LP — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. MPLX operates Logistics and Storage (L&S) and Gathering and Processing (G&P) businesses. Comparisons with 2019 reflect retrospective adjustment for the Andeavor Logistics merger.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenues and other income | $2.081 billion | $2.210 billion | $3.073 billion | $4.445 billion |
| Income/(loss) from operations | $878 million | $885 million | $(1.608) billion | $1.797 billion |
| Net income/(loss) | $655 million | $657 million | $(2.061) billion | $1.346 billion |
| Net income/(loss) attributable to MPLX LP | $648 million | $482 million | $(2.076) billion | $985 million |
| Common-unit earnings/(loss) per unit | $0.58 | $0.56 | $(2.02) | $1.16 |
| Operating cash flow | Not stated by quarter | Not stated by quarter | $2.114 billion | $1.954 billion |
Q2 operating margin was approximately 42.2% of total revenues and other income, compared with 40.0% a year earlier. This is a simple calculation from reported figures. The six-month loss reflects substantial impairments rather than solely current-period operating performance.
- Impairments: First-half results included $2.165 billion of impairment expense and a $1.264 billion impairment recorded through equity-method investment income, or $3.429 billion in aggregate. Charges reflected COVID-19-related disruption, commodity-price volatility, lower expected producer volumes and slower drilling activity. No further impairment indicators were identified in Q2.
- Segment Adjusted EBITDA: Q2 was $839 million for L&S and $388 million for G&P. L&S benefited from tariff impacts, deficiency payments and marine activity; G&P faced lower volumes and product prices. These are non-GAAP measures.
- Distributable cash flow (DCF): Q2 DCF attributable to GP and LP unitholders was $996 million, versus $975 million including predecessor results in Q2 2019. First-half DCF was $2.043 billion versus $1.966 billion. First-half declared common and preferred distributions totaled $1.505 billion; comparing these amounts implies DCF coverage of approximately 1.36x. DCF is a non-GAAP measure.
- Capital spending and cash: First-half investing cash outflow was $777 million, including $708 million of property, plant and equipment additions. Total capital expenditures and investments in unconsolidated affiliates were $910 million, down from $1.425 billion. Cash and cash equivalents were $67 million at June 30, versus $15 million at year-end 2019.
- Debt and liquidity: Gross borrowings were $20.938 billion at June 30, compared with $20.119 billion at year-end; reported long-term debt was $20.556 billion. Total liquidity was $4.242 billion, including $2.675 billion available on the revolving facility, $1.5 billion available under the MPC loan agreement and $67 million of cash. Debt-to-covenant EBITDA was 3.9x, within the 5.0x covenant limit.
Changes versus the prior comparable period
- Q2 revenue and other income declined $129 million, mainly from lower G&P fees and prices and reduced L&S volumes; Q2 net income was broadly unchanged, while MPLX-attributable net income increased.
- First-half revenue and other income declined $1.372 billion, substantially reflecting the $1.264 billion equity-investment impairment, lower G&P prices and lower volumes. First-half operating results shifted to a loss after impairments.
- First-half operating cash flow rose $160 million, while investing cash use fell $662 million, primarily due to lower capital spending and lower equity-investment contributions.
- Q2 common-unit distribution was $0.6875, unchanged from Q1 2020 and 3% above Q2 2019. The declared Q2 distribution totaled $715 million for common units.
Outlook, risks and unusual items
- Management gave no specific earnings or full-year financial guidance in the provided filing text. It said COVID-19 and its effects on customers and demand remained uncertain. MPLX canceled or delayed some 2020 capital expenditures, reduced operating costs and continued to review its capital portfolio.
- MPC is a significant related party: it held approximately 63% of common units at June 30 and accounted for 56% of Q2 revenue and other income. MPLX also relies on MPC commercial agreements and services.
- Dakota Access/Bakken Pipeline: A court ordered the easement vacated and the pipeline shut down by August 5 pending an environmental impact statement. An appellate administrative stay was in place as of the filing. A shutdown or permanent loss of the easement could require MPLX to fund its 9.19% share of debt service, remediation or redemption costs; maximum potential undiscounted payments under the contribution agreement were approximately $230 million.
- Tesoro High Plains Pipeline: The Bureau of Indian Affairs asserted trespass damages of approximately $187 million and sought cessation of operations for certain tracts. MPLX appealed, which stayed the demand, and said it was negotiating. Management did not expect a material adverse effect.
- Post-quarter transaction: On July 31, MPLX transferred its Western wholesale distribution business to MPC in exchange for redemption and cancellation of 18,582,088 MPC-held common units, valued at $340 million.
- Environmental remediation liabilities accrued were $18 million. The filing also describes ordinary-course litigation and environmental matters; some potential losses could not be estimated.
Important facts for investors to verify
- Whether COVID-19, producer activity and commodity prices lead to further impairments or sustained volume and cash-flow pressure.
- The legal and operating status of the Dakota Access easement and any resulting contribution requirements; also the progress and potential cost of the High Plains dispute.
- Distribution sustainability against DCF, capital requirements and debt service, including the assumptions behind non-GAAP DCF and coverage.
- Credit ratings, leverage and available liquidity, including MPLX’s reliance on MPC and the terms of its related-party arrangements.
- The financial and operational effects of the $340 million Western wholesale business transfer and unit redemption.