MPLX LP quarterly report, Q3 FY2020

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MPLX LP — Form 10-Q Summary

Reporting period: Quarter and nine months ended September 30, 2020; filed November 6, 2020. MPLX owns and operates midstream infrastructure and fuels-distribution businesses in Logistics and Storage (L&S) and Gathering and Processing (G&P). Comparisons are with 2019; prior-period reporting was retrospectively adjusted for the ANDX common-control transaction.

Financial performance and liquidity

  • Third quarter: Revenue and other income was $2.247 billion, down $33 million year over year. Operating income was $899 million versus $926 million; net income was $674 million versus $689 million. Net income attributable to MPLX was $665 million versus $629 million; basic and diluted earnings per common unit were $0.61 in both periods.
  • First nine months: Revenue and other income was $5.320 billion versus $6.725 billion. MPLX reported a net loss of $1.387 billion, including a $2.165 billion operating impairment charge and a $1.264 billion equity-investment impairment reflected in equity-method income. The comparable 2019 period had net income of $2.035 billion. Loss attributable to MPLX was $1.411 billion, or $1.43 per unit, versus income of $1.614 billion, or $1.78 per unit.
  • Non-GAAP measures: Q3 Adjusted EBITDA attributable to MPLX was $1.335 billion versus $1.165 billion. Nine-month Adjusted EBITDA was $3.856 billion versus $3.015 billion, excluding predecessor adjustments as presented by the company. Nine-month DCF attributable to general and limited partners, including predecessor results for comparability, was $3.075 billion versus $2.963 billion. These are company-defined non-GAAP measures.
  • Segments: Q3 segment Adjusted EBITDA was $893 million for L&S, up from $766 million, and $442 million for G&P, up from $399 million. Nine-month amounts were $2.604 billion for L&S and $1.252 billion for G&P; G&P results were affected by investment impairments.
  • Cash flow and investment: Nine-month operating cash flow was $3.336 billion versus $2.990 billion. Investing activities used $1.060 billion versus $2.189 billion; financing activities used $2.263 billion versus $845 million. Cash capital additions to property, plant and equipment were $982 million; reported total capital expenditures, including investments and net of specified reimbursements, were $1.193 billion.
  • Balance sheet and debt: At September 30, cash was $28 million, current assets $1.272 billion and current liabilities $1.531 billion. Debt including amounts due within one year was $20.757 billion gross, or $20.455 billion carrying value excluding financing leases as presented in the debt fair-value disclosure; long-term debt due after one year was $20.042 billion. The company reported $4.933 billion of total liquidity, including cash, and $3.405 billion available under its revolving facility. Debt-to-credit-agreement EBITDA was 3.9x, within the 5.0x covenant limit; MPLX reported covenant compliance. Credit ratings were investment grade with negative outlooks.
  • Distribution: The Q3 common-unit distribution was declared at $0.6875 per unit, unchanged from Q2 2020 and 1.5% above Q3 2019. The filing states that distributions depend on available cash and are not otherwise guaranteed at a particular amount.

Material changes and management commentary

  • COVID-19-related economic disruption, lower demand, commodity-price volatility and producer reductions to drilling and production forecasts pressured volumes and drove impairments. Management reported no new impairment triggers in Q2 or Q3, but noted that assumptions remain sensitive to future prices, volumes and discount rates.
  • Reported nine-month revenue and income were materially affected by the $1.264 billion impairment of equity-method investments, while lower G&P prices and volumes also weighed on results. Q3 Adjusted EBITDA increased, supported by both segments and lower costs, despite lower overall revenue.
  • MPLX said it canceled or delayed certain 2020 capital spending, reduced operating costs and continued to review its capital portfolio. It did not provide a specific full-year earnings, cash-flow or capital-spending forecast in the supplied filing text.
  • In August, MPLX issued $3 billion of senior notes, including 1.750% notes due 2026 and 2.650% notes due 2030, to refinance or redeem higher-cost debt and reduce revolver borrowings. The $300 million of 6.250% notes due 2022 was redeemed on October 15, 2020, after quarter-end.
  • The July Wholesale Exchange transferred Western Refining Wholesale to MPC in exchange for redemption and cancellation of 18.6 million MPLX units valued at $340 million. The filing also reports a subsequent November 2 authorization for up to $1 billion of public-unit repurchases; repurchases are discretionary and have no stated expiration date.
  • MPC-related activity is significant: MPC accounted for 55% of Q3 revenue and other income and 31% of costs and expenses. MPC also held approximately 62% of common units at September 30. A $36 million Q3 restructuring charge reimbursed to MPC related to workforce reductions affecting MPC-employed personnel supporting MPLX.

Risks, contingencies and unusual items

  • Dakota Access Pipeline: MPLX has a 9.19% indirect interest and contingent funding obligations. The easement was vacated while an environmental impact statement is prepared, but an appellate stay kept the pipeline operational. A shutdown or permanent loss of the easement could require contributions toward debt service, remediation or bond redemption. MPLX estimated maximum potential undiscounted payments of approximately $230 million at September 30.
  • Tesoro High Plains Pipeline: The Bureau of Indian Affairs had demanded shutdown and assessed approximately $187 million in trespass damages. On October 29, the Assistant Secretary vacated that order and required a new decision by December 15; settlement discussions continued. Management did not expect a material adverse effect.
  • Environmental remediation accruals were $18 million. MPLX disclosed other ordinary-course litigation and environmental matters, while stating outcomes cannot be predicted with certainty. A separate EPA matter was settled for a $150,025 penalty.
  • MPC’s indefinite idling of its Martinez and Gallup refineries prompted ongoing monitoring of related MPLX assets for possible impairment or changes in useful lives; no impairment was identified from the announcement at the time.
  • Other risks include further impairments, COVID-19 effects, lower customer throughput or nonpayment, commodity and interest-rate volatility, reliance on MPC agreements, regulatory and environmental matters, and access to capital. The filing notes that some contingency exposures cannot be reliably estimated.

Important facts for investors to verify

  • Whether producer activity, throughput and commodity-price assumptions recover sufficiently to support G&P assets and equity-method investments, and whether additional impairment charges arise.
  • The status and potential cash consequences of the Dakota Access easement/EIS proceedings and the new BIA decision concerning the Tesoro High Plains Pipeline.
  • Distribution coverage and funding capacity after capital spending, debt service and preferred-unit distributions; the DCF measure is non-GAAP and should be reviewed alongside operating cash flow.
  • Debt refinancing, maturities, ratings outlooks and the continued availability of the revolving credit facility and MPC loan facility.
  • The degree of reliance on MPC as customer, service provider and sponsor, and the effects of MPC’s refinery and portfolio decisions on MPLX.
  • Execution and timing of the announced unit repurchase authorization, which is discretionary, and the effect of any repurchases on leverage and distribution capacity.