MPLX LP — 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. MPLX completed its IPO on October 31, 2012; therefore, historical results primarily reflect its accounting predecessor, and post-IPO results are not directly comparable. The filing reports fourth-quarter results for the full quarter, split between the predecessor through October 30 and MPLX thereafter.
Business context
MPLX is a fee-based midstream partnership formed by Marathon Petroleum Corporation (MPC). It holds a 51% general partner interest in Pipe Line Holdings, which owns crude oil and refined-product pipelines, a barge dock and tank farms, and it owns a butane cavern. Its revenue comes principally from transportation tariffs, storage fees and operating services. MPC is its dominant customer and retained a 49% interest in Pipe Line Holdings.
Financial performance and liquidity
| Metric | 2012 | 2011 |
|---|---|---|
| Total revenue and other income | $461.9 million | $410.6 million |
| Income from operations | $143.2 million | $132.0 million |
| Net income | $144.0 million | $134.0 million |
| Net income attributable to MPLX LP | $130.8 million | $134.0 million |
| Operating cash flow | $190.6 million | $181.9 million |
| Capital expenditures | $148.0 million | $55.9 million |
| Adjusted EBITDA attributable to MPLX LP | $166.3 million | $168.3 million |
- Revenue increased about 12.5% and operating income about 8.5%. Approximate operating margin was 31.0%, versus 32.1% in 2011; net margin was approximately 31.2%, versus 32.6%.
- Revenue growth reflected higher average tariffs and more third-party volumes, partly offset by lower related-party throughput. Average pipeline throughput declined to 2.127 million barrels per day from 2.215 million; average tariffs rose to $0.54 from $0.47 per barrel.
- Net income attributable to MPLX was lower than 2011 despite higher consolidated net income, partly because post-IPO results include a noncontrolling interest for MPC’s retained 49% stake in Pipe Line Holdings. Full-year comparisons also span the predecessor and the post-IPO partnership.
- 2012 operating cash flow was $190.6 million. Investing activities provided $87.4 million, mainly reflecting repayment of related-party loans; financing activities used $61.4 million, including distributions to MPC and IPO-related cash movements.
- At year-end, cash was $216.7 million, total assets $1.30 billion, and debt $11.3 million, consisting of capital-lease obligations. The $500 million revolving facility was undrawn; MPLX reported a 0.1-to-1 debt-to-EBITDA covenant ratio and compliance with covenants.
- For October 31–December 31, MPLX-attributable net income was $13.1 million and distributable cash flow was $16.7 million. The full fourth-quarter consolidated net income was $42.1 million, but included predecessor results through October 30.
Material changes, outlook and commentary
- The IPO generated $407.1 million in net proceeds. MPLX retained $10.4 million for working capital and contributed $191.6 million to Pipe Line Holdings for anticipated expansion projects; $202.7 million was distributed to MPC.
- Management’s 2013 capital budget was $142.5 million: $109.3 million for expansion and $33.2 million for maintenance. The Patoka-to-Catlettsburg crude pipeline upgrade was a major component. Environmental capital spending was projected at $6.4 million in 2013 and $10.1 million in 2014.
- MPLX intended to pay a minimum quarterly distribution of $0.2625 per unit, or $1.05 annualized, subject to available cash and reserves. The first distribution, $0.1769 per unit for the post-IPO portion of fourth-quarter 2012, was paid in February 2013. No distribution was made during calendar 2012.
- Long-term, fee-based MPC agreements include minimum throughput and storage commitments. Deficiency payments may support cash flows if minimum transportation volumes are missed, but credits can later offset payments for excess shipments. MPC can suspend, reduce or terminate certain obligations under specified circumstances.
- Key risks include MPC concentration—82.2% of 2012 revenue and other income, excluding certain joint-tariff amounts—refinery shutdowns or reduced volumes, tariff challenges and regulation, operational incidents, environmental obligations, and dependence on future acquisitions and capital-market access. The partnership also disclosed governance and related-party conflicts arising from MPC’s control and ownership.
Contingencies and unusual items
- General and administrative expense included $10.1 million of pension settlement expense in 2012; the filing attributes $9.5 million of pension expense to lump-sum payments made by MPC for periods before the employee transfer.
- Environmental remediation liabilities were $1.5 million at year-end, with a reasonably possible additional loss of up to $0.5 million. MPC agreed to indemnify specified pre-IPO environmental liabilities, subject to stated terms and, for certain unknown liabilities, a $500,000 aggregate deductible.
- An Illinois environmental contribution lawsuit remained pending; MPLX said it could not estimate a reasonably possible loss, and MPC agreed to indemnify MPLX for losses if MPL were held responsible. The EPA also alleged Clean Air Act violations at an MPC facility operated by MPL; a penalty could exceed $100,000, with MPC indemnification disclosed.
- The filing states that management believed cash from operations, the revolver and potential debt or equity issuance would meet expected needs, but this is not a guarantee. The 10-K contains no specific earnings or distribution guidance beyond the stated distribution intention and capital budget.
Important facts for investors to verify
- Whether MPC’s minimum-volume commitments, refinery operations and credit quality support the projected stability of cash flows.
- Whether 2013 capital spending, particularly the Patoka-to-Catlettsburg upgrade, is delivered on budget and generates expected throughput and returns.
- How post-IPO results and distributable cash flow develop; full-year 2012 figures combine predecessor and partnership periods and should not be treated as a clean run-rate comparison.
- Whether the intended minimum distribution is covered after maintenance capital, related-party charges, reserves and debt service.
- Developments in environmental claims, tariff regulation, and the terms and practical value of MPC indemnities.
- Related-party service costs, governance safeguards and any future asset dropdowns or acquisitions from MPC.