MPLX LP — Q2 2013 Form 10-Q
Reporting period: Three and six months ended June 30, 2013. MPLX is a fee-based master limited partnership focused on crude oil and refined-product transportation and storage. At quarter-end, it owned a 56% general partner interest in Pipe Line Holdings and a 100% interest in a West Virginia butane cavern. Comparisons require caution: 2012 figures are for the Predecessor, which included assets not contributed to MPLX, while 2013 reflects post-IPO operations and MPC’s retained interest.
Financial and operating results
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Total revenues and other income | $122.2 million | $110.4 million | $236.9 million | $212.5 million |
| Income from operations | $35.2 million | $29.5 million | $70.7 million | $64.4 million |
| Net income | $34.8 million | $29.8 million | $70.1 million | $65.0 million |
| Net income attributable to MPLX LP | $18.6 million | $29.8 million | $36.2 million | $65.0 million |
| Operating cash flow | Not separately provided | Not separately provided | $108.6 million | $94.9 million |
| Capital expenditures | Not separately provided | Not separately provided | $46.6 million | $66.9 million |
- Q2 operating margin was approximately 28.8%, compared with 26.7% in the prior-year quarter; first-half operating margin was approximately 29.8%, versus 30.3%. These comparisons are affected by the change in business perimeter and reporting structure.
- Q2 and first-half adjusted EBITDA attributable to MPLX LP were $26.7 million and $51.8 million, respectively. Distributable cash flow attributable to MPLX LP was $27.2 million for Q2 and $55.2 million for the first half. Both are non-GAAP measures.
- Pipeline throughput in Q2 totaled 2.034 million barrels per day, down 113 thousand barrels per day year over year; crude throughput fell 118 thousand barrels per day, while product throughput rose 5 thousand barrels per day.
- At June 30, cash was $115.3 million, down from $216.7 million at year-end 2012. Total debt was $10.9 million, primarily a capital lease; no revolving-credit borrowings or letters of credit were outstanding. The $500 million revolver was available, and the partnership reported a 0.1-to-1.0 debt-to-Consolidated EBITDA covenant ratio against a 5.0-to-1.0 limit.
Changes, outlook, and material items
- On May 1, MPLX paid MPC $100 million in cash for an additional 5% interest in Pipe Line Holdings, raising its ownership from 51% to 56%. The purchase reduced first-half cash and changed the share of earnings attributable to MPLX; the 2013 attributable-income comparison is therefore not like-for-like with the 2012 Predecessor.
- Revenue growth reflected higher tariffs and storage fees, partly offset by lower crude volumes. MPC did not meet minimum volume commitments; related-party deferred revenue reached $18.3 million at June 30, including a $5.3 million Q2 deficiency payment. These payments are recognized as revenue when credits are used, become unusable, or expire.
- Management’s 2013 capital budget was initially $142.5 million, including $109.3 million of expansion spending; it was increased by $100 million for the additional Pipe Line Holdings interest. Capital commitments for property, plant and equipment were $33.2 million, primarily for the Patoka-to-Catlettsburg pipeline upgrade.
- MPLX stated its intent to maintain annual distribution growth of 15%–20% for at least the next several years. It declared a $0.2850 per-unit quarterly distribution, payable August 14, 2013, and said it intended to pay at least the $0.2625 minimum quarterly distribution. These are forward-looking intentions, not guarantees.
- Key risks include dependence on MPC and its commercial agreements, including provisions allowing suspension, reduction, or termination in certain circumstances; lower volumes, competition, operational disruptions, regulation, environmental costs, and project execution. MPC accounted for 82.1% of first-half 2013 total revenues and other income.
- Environmental remediation liabilities were $1.1 million, with up to $0.4 million of reasonably possible losses above the accrual. A pending Illinois environmental contribution lawsuit has no estimable loss range; MPC agreed to indemnify MPLX for losses if MPL is found responsible. Vehicle-lease guarantees had maximum potential payments of $1.4 million.
- Management reported effective disclosure controls as of June 30 and no material change in internal control over financial reporting during the quarter. The filing provides no clear full-year earnings or cash-flow guidance.
Investor verification priorities
- Assess how the post-IPO structure, excluded joint-interest assets, and MPC’s retained ownership affect comparability and earnings attributable to MPLX.
- Verify MPC’s future throughput against minimum commitments and monitor recognition and expiration of the $18.3 million deficiency-payment balance.
- Track cash generation, planned capital spending, funding needs, and distribution coverage, particularly given distributions exceeding MPLX-attributable net income in the first half.
- Review progress, cost, and timing of the Patoka-to-Catlettsburg upgrade and other expansion projects.
- Evaluate MPC concentration, related-party service costs, environmental exposure, and the contractual rights that could alter MPC’s commitments.