MPLX LP — 2015 Second-Quarter Form 10-Q
Reporting period: Three and six months ended June 30, 2015; comparisons are with the corresponding 2014 periods. MPLX is a fee-based midstream partnership focused on crude oil and refined-products transportation and storage. At quarter-end, it held a 99.5% interest in Pipe Line Holdings and owned a butane cavern.
Financial results and position
| Metric | Q2 2015 | Q2 2014 | First half 2015 | First half 2014 |
|---|---|---|---|---|
| Total revenue and other income | $147.6 million | $133.9 million | $285.1 million | $271.2 million |
| Operating income | $57.6 million | $44.3 million | $108.8 million | $100.6 million |
| Net income | $51.4 million | $42.9 million | $97.3 million | $98.6 million |
| Net income attributable to MPLX LP | $51.2 million | $28.8 million | $96.8 million | $63.0 million |
| Limited partner net income per unit | $0.50 | $0.37 | $0.96 | $0.79 |
| Distributable cash flow attributable to MPLX LP (non-GAAP) | $61.0 million | $36.2 million | $118.4 million | $73.5 million |
- Revenue growth reflected increased related-party volumes and tariffs, partly offset by reduced third-party shipments. Q2 total pipeline throughput rose to 2,064 thousand barrels per day from 1,915; first-half throughput was 1,981 thousand barrels per day versus 1,872.
- Operating income improved, while net interest and other financial costs rose to $6.2 million in Q2 and $11.5 million for the first half, principally following the term loan and 2025 senior-note issuance. First-half net income was slightly lower year over year.
- The 2014 comparison is affected by MPLX’s ownership: the partnership acquired an additional 30.5% interest in Pipe Line Holdings effective December 1, 2014. Consequently, 2014 results included materially more net income attributable to MPC’s retained interest, making MPLX-attributable earnings growth different from consolidated net-income growth.
- First-half operating cash flow was $127.9 million, nearly unchanged from $128.4 million. Investing cash outflow was $64.2 million, versus $9.4 million, reflecting higher project spending; financing provided $39.4 million versus a $129.9 million use of cash in 2014. Cash ended the period at $130.4 million, up from $27.3 million at year-end.
- At June 30, gross debt was $759.4 million, compared with $644.8 million at December 31, 2014. This included $500 million of 4.00% senior notes due 2025 and a $250 million term loan. The $1.0 billion MPLX revolver was undrawn; total reported liquidity, including cash and the separate $50 million Pipe Line Holdings facility, was $1.18 billion.
- Debt covenant leverage was 3.1x against a 5.0x limit (with specified acquisition-related flexibility); MPLX reported compliance. Credit ratings were BBB- / Baa3 / BBB-, each with stable outlook.
Outlook, developments, and risks
- Management’s 2015 capital plan was approximately $260 million, including about $220 million of expansion spending and nearly $40 million of maintenance spending. First-half capital expenditures were $76.6 million, primarily for the Cornerstone and Utica projects, a Patoka tank expansion, and a Robinson, Illinois butane cavern.
- MPLX declared a $0.44-per-unit quarterly distribution payable August 14, 2015, up 7% from the first-quarter 2015 rate and 28% from Q2 2014. The filing said all subordinated units were expected to convert one-for-one into common units effective August 17, 2015, after the distribution payment and satisfaction of required tests.
- On July 11, 2015, MPLX agreed to acquire MarkWest Energy Partners in a unit-for-unit merger with a $675 million cash payment to MarkWest unitholders, funded by MPC. The transaction’s implied enterprise value was approximately $20 billion, including assumption of about $4.2 billion of debt. Closing was expected in Q4 2015, subject to unitholder, regulatory, and other conditions. The previously proposed MPC marine-business acquisition was postponed indefinitely. A purported class action challenging the merger was filed in July; MPLX said the allegations were without merit.
- MPC and related parties accounted for 92% of first-half 2015 revenue and other income when specified joint-tariff volumes are included. This concentration, and the minimum-volume and other commercial arrangements with MPC, are key dependencies. MPC’s volume-deficiency payments are initially deferred revenue; $32.7 million of related credits remained at quarter-end.
- Other stated risks include project delays or cost overruns, competition, pipeline operating interruptions, regulatory and environmental requirements, financing and distribution capacity, and potential changes to MPC’s commitments. Environmental remediation accruals were $1.8 million; the filing said ultimate costs for certain matters could not be estimated. Contractual commitments to acquire property, plant, and equipment were $47.5 million.
Important facts for investors to verify
- Merger approval, regulatory conditions, final terms, financing effects, and the status or resolution of the related lawsuit.
- Whether expected growth projects meet schedule and budget, and how the $260 million capital plan evolves.
- MPC’s ongoing throughput commitments and the timing of recognition or use of deferred volume-deficiency credits.
- Distribution coverage and funding needs as distributions rise and subordinated units convert.
- Debt covenant headroom, credit ratings, and liquidity after any acquisition-related financing and transaction closing.