MPLX LP — Q2 2021 Form 10-Q Summary
Business context and period. MPLX is a midstream energy partnership sponsored by Marathon Petroleum Corporation (MPC), operating Logistics and Storage (L&S) and Gathering and Processing (G&P) businesses. This unaudited filing covers the quarter and six months ended June 30, 2021, compared with the same 2020 periods. Results are not necessarily indicative of full-year performance.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue and other income | $2.395B | $2.081B | $4.734B | $3.073B |
| Income from operations | $931M | $878M | $1.905B | $(1.608)B |
| Net income (loss) | $715M | $655M | $1.463B | $(2.061)B |
| Net income attributable to MPLX LP | $706M | $648M | $1.445B | $(2.076)B |
| Common-unit earnings per unit, basic and diluted | $0.66 | $0.58 | $1.34 | $(2.02) |
| Adjusted EBITDA attributable to MPLX LP (non-GAAP) | $1.374B | $1.227B | $2.726B | $2.521B |
| DCF attributable to GP and LP unitholders (non-GAAP) | $1.219B | $996M | $2.325B | $2.043B |
| Net cash from operating activities | $1.365B | $1.105B | $2.489B | $2.114B |
Q2 operating margin was approximately 38.9%, versus 42.2% a year earlier, calculated from reported operating income and revenue. No formal full-year guidance is provided in the supplied filing text.
Liquidity, debt and distributions
- At June 30, cash was $8M; total assets were $35.773B and total liabilities were $22.010B.
- Debt borrowings totaled $19.609B before unamortized issuance costs and discounts/premiums; reported long-term debt was $19.234B, with less than $1M due within one year. The revolving facility had no borrowings and $3.5B available.
- Reported total liquidity was $4.515B, including $4.507B of available credit capacity and $8M cash. The MPC revolving loan had $493M outstanding against $1.5B capacity and can be subject to demand for repayment.
- Debt covenant leverage was 3.7x against a maximum of 5.0x (or 5.5x in specified acquisition circumstances); MPLX reported compliance. Senior debt ratings were investment grade: Moody’s Baa2 stable, S&P BBB negative, and Fitch BBB stable.
- Six-month investing cash use was $245M, including $235M of property, plant and equipment additions. Financing cash use was $2.251B, including $1.421B of distributions to unitholders and the general partner and $310M of unit repurchases.
- Management reported Q2 free cash flow of $1.210B and excess cash flow after common and preferred distributions of $481M; six-month excess cash flow was $758M. These are non-GAAP measures.
- The quarterly common-unit distribution remained $0.6875 per unit. The second-quarter distribution was declared July 27, 2021, payable August 13. MPLX repurchased 11.93M public units for $310M during the first half at an average $26.02 per unit; $657M remained authorized at June 30.
Changes versus prior period and operating performance
- Q2 revenue rose $314M (about 15%) and net income attributable to MPLX increased $58M. Higher G&P product prices and volumes, increased pipeline throughput, and terminal activity contributed. Purchased product costs also rose substantially, mainly due to higher commodity prices and volumes and derivative losses.
- Q2 Segment Adjusted EBITDA increased to $947M in L&S from $839M and to $427M in G&P from $388M. L&S benefited from pipeline volumes and terminal activity; G&P product-related revenue benefited from higher prices and some volume growth.
- First-half 2021 net income improved sharply from the prior-year loss, principally because 2020 included large impairments: $1.814B of goodwill, $1.264B of equity-method investments, $177M of intangibles and $174M of property and equipment. First-half 2021 included $42M of impairment expense, including $6M related to equity-method investments.
- First-half Adjusted EBITDA rose $205M and DCF rose $282M year over year. Management cited improved product prices, higher pipeline volumes and cost reductions; comparisons also reflect prior-year impairments and the 2020 transfer of the Western wholesale distribution business to MPC.
- Capital expenditures and investments in unconsolidated affiliates were lower: total growth and maintenance capital expenditures were $258M in the first half, versus $605M in 2020. Management attributed lower investing cash use to reduced capital spending and lower contributions to equity-method investments.
Outlook, commentary and risks
- Management said operating conditions improved in the first half as COVID-19 restrictions eased and economic activity increased, but noted uncertainty about a resurgence and its possible financial effects. MPLX emphasized capital discipline, operating-cost reductions and portfolio optimization.
- MPLX recorded a $42M G&P impairment tied to anticipated divestiture of non-core assets and closure of other non-core assets. It completed the Javelina asset sale in February 2021; an earnout was recorded as a contingent asset, with no sale gain or loss recognized.
- On August 4, 2021, MPLX announced plans to redeem its $1B floating-rate notes due September 2022, expected September 3, 2021, using cash and/or borrowing capacity.
- MPC held approximately 63% of common units and accounted for 47% of Q2 revenue and other income (excluding specified items). MPC provides substantial contracted services and is a major customer and service provider, creating related-party concentration and dependence risks.
- The Dakota Access Pipeline remained operational, but the easement across Lake Oahe had been vacated pending an environmental impact statement. MPLX’s maximum potential undiscounted contribution under a contingent equity agreement was approximately $230M; a future shutdown or permanent closure could trigger funding obligations.
- Environmental remediation accruals were $24M at June 30, 2021. MPLX also disclosed an unresolved Fort Berthold Reservation pipeline-rights dispute and other legal and environmental matters; management said outcomes could not be predicted with certainty and generally did not expect a material adverse effect.
- An embedded derivative liability in a producer agreement was valued at $102M, up from $63M at year-end, reflecting assumptions including commodity pricing and contract-extension probabilities. MPLX reported no open commodity derivative contracts beyond this embedded derivative.
- Key stated risks include commodity-price and demand changes, producer throughput, COVID-19 resurgence, further impairments, MPC strategy and contract exposure, environmental regulation, litigation, project execution, credit-market conditions, and the ability to sustain distributions and capital plans.
Important facts for investors to verify
- Whether improving throughput, commodity prices and economic activity persist, and how much earnings depend on commodity-linked G&P product sales versus fee-based contracts.
- Distribution coverage and the sustainability of the $0.6875 quarterly common-unit distribution, using both GAAP cash flow and the filing’s non-GAAP DCF methodology.
- Debt maturities, refinancing and funding for the announced $1B note redemption, including reliance on the revolving facility and MPC loan agreement.
- Progress and proceeds from non-core asset divestitures, and whether further impairment charges or closure costs arise.
- Developments in the Dakota Access easement and EIS, and potential MPLX cash contributions; also monitor the Fort Berthold pipeline-rights dispute.
- The financial and operational effects of MPC concentration, related-party balances, and any changes to MPC’s minimum-volume or service commitments.
Adjusted EBITDA, DCF, free cash flow and excess cash flow are non-GAAP measures defined by MPLX and should not be treated as substitutes for GAAP results or compared with similarly named measures without reviewing definitions and reconciliations.