MPLX LP — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2023. MPLX is a midstream energy partnership with Logistics and Storage (L&S) and Gathering and Processing (G&P) segments; Marathon Petroleum Corporation (MPC) is its sponsor and major customer.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue and other income | $2.690B | $2.940B | $5.403B | $5.550B |
| Operating income | $1.175B | $1.117B | $2.371B | $2.177B |
| Net income attributable to MPLX | $933M | $875M | $1.876B | $1.700B |
| Common-unit net income per unit | $0.91 | $0.83 | $1.81 | $1.61 |
| Adjusted EBITDA attributable to MPLX (non-GAAP) | $1.531B | $1.457B | $3.050B | $2.850B |
| DCF attributable to MPLX (non-GAAP) | $1.315B | $1.237B | $2.583B | $2.447B |
| Operating cash flow | $1.437B | $1.487B | $2.664B | $2.612B |
| Adjusted free cash flow after distributions (non-GAAP) | $363M | $614M | $547M | $706M |
Q2 operating margin was approximately 43.7%, compared with 38.0% a year earlier, calculated as operating income divided by revenue and other income. Revenue declined, mainly because lower NGL prices reduced product-related revenue; lower purchased-product costs partly offset that decline. Higher throughput, tariff rates and equity-method investment income supported operating income, EBITDA and DCF growth. The filing cautions that non-GAAP measures are not substitutes for GAAP results and may not be comparable across companies.
Segments: Q2 Segment Adjusted EBITDA was $1.022B for L&S, up $56M, and $509M for G&P, up $18M. L&S benefited from higher pipeline throughput and tariff rates; G&P benefited from higher service revenue and joint-venture income, despite lower commodity-linked revenue.
Cash, capital and distributions: Cash and cash equivalents were $755M at June 30, versus $238M at December 31, 2022. First-half operating cash flow was $2.664B; investing used $491M and financing used $1.656B. Capital expenditures were $432M of PP&E additions; total capital expenditures as presented by management were $421M after specified adjustments. MPLX declared a Q2 distribution of $0.775 per common unit, totaling $776M, payable August 14, 2023. Total distributions applicable to the first half were $1.603B.
Debt and liquidity: Total debt borrowings were $20.707B before unamortized costs and discounts, including $20.657B of senior notes; no revolving-credit borrowings were outstanding. The current portion of debt was $1M, compared with $988M at year-end. Available liquidity was approximately $4.255B, including $755M cash and $3.5B of undrawn MPLX and MPC facilities. The credit-agreement debt-to-EBITDA covenant ratio was 3.5x versus a 5.0x limit; MPLX reported compliance. Debt fair value was $18.671B versus $20.527B carrying value.
Material changes and notable items
- Revenue fell $250M in Q2 and $147M in the first half year over year, primarily because of lower NGL prices. Q2 product-related revenue in G&P fell $393M, while purchased-product costs decreased $309M.
- In February, MPLX issued $1.6B of senior notes: $1.1B at 5.00% due 2033 and $500M at 5.65% due 2053. Proceeds and cash were used to redeem $600M of Series B preferred units and repay $1.0B of 4.50% notes due July 2023. The early debt redemption produced a $9M loss in Q1.
- Q2 common-unit distributions were $0.775 per unit, up from $0.705 in Q2 2022. No common units were repurchased in the first half; $846M remained under the $1B authorization.
- Several MPC terminal and storage agreements were amended in Q2, including exercise of a five-year renewal option extending terms to 2028. MPC accounted for approximately 50% of revenue and other income in the first half; MPC held approximately 65% of common units.
- Management’s initial 2023 capital plan was $950M, net of reimbursements: $800M growth and $150M maintenance. First-half growth projects included gas processing and gathering work in the Marcellus and Permian basins and additions to the inland marine fleet.
Outlook, risks and contingencies
MPLX did not provide specific earnings or cash-flow guidance in the supplied filing text. Management said it expects operating cash generation, revolving facilities and capital-market access to fund operations, capital needs, contractual obligations and distributions. It cited capital discipline, a low-cost culture and portfolio optimization as priorities, while noting uncertainty from inflation, higher interest rates, recession concerns and fuel prices.
- Commodity and operating exposure: NGL price changes affect product revenue and purchased-product costs. The filing also identifies risks from throughput and producer activity, project costs and timing, outages, regulation, interest rates and access to financing.
- DAPL contingent commitment: MPLX’s 9.19% indirect interest in the Bakken Pipeline system is subject to an environmental review and related litigation concerning the Lake Oahe easement. The pipeline remained operational; maximum potential undiscounted payments under the contingent equity agreement were approximately $170M at June 30, 2023.
- Other legal and environmental matters: A subsidiary disputes federal claims concerning alleged pipeline trespass on the Fort Berthold Reservation, including claims seeking profits, pipeline removal and remediation. Remediation liabilities were $17M; management said ultimate costs and potential penalties cannot currently be fully estimated.
- Related-party dependence: Long-term fee-based MPC agreements and minimum-volume commitments support activity, but MPC’s role as sponsor, customer and service provider creates significant related-party exposure.
- Management reported no material changes to previously disclosed risk factors or environmental compliance costs, and stated that disclosure controls were effective at quarter-end.
Investor verification priorities
- Assess whether cash generation and distribution coverage remain resilient after capital spending and the increased distribution; Q2 adjusted free cash flow after distributions was $363M.
- Track debt, interest expense and refinancing costs following the 2023 note issuance and preferred-unit redemption; verify the effect on future cash available for distributions.
- Monitor NGL prices, throughput, tariff escalations and segment EBITDA to distinguish commodity-driven revenue changes from underlying fee-based performance.
- Review the DAPL easement process and litigation, including potential contribution obligations up to the disclosed $170M, and the Fort Berthold Reservation dispute.
- Evaluate MPC-related revenue concentration, agreement renewals and minimum-volume protections, as well as execution and returns from the $950M 2023 capital plan.