MPLX LP — Q1 2020 Form 10-Q Summary
Business context and reporting period
Quarter ended March 31, 2020. MPLX operates midstream infrastructure and fuels-distribution businesses through Logistics and Storage (L&S) and Gathering and Processing (G&P). The comparison with Q1 2019 is retrospectively adjusted for the ANDX common-control transaction.
Financial and operating performance
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue and other income | $992 million | $2.235 billion |
| Operating income/(loss) | $(2.486) billion | $912 million |
| Net income/(loss) | $(2.716) billion | $689 million |
| Net income/(loss) per common unit | $(2.60) | $0.61 |
| Operating cash flow | $1.009 billion | $853 million |
| Adjusted EBITDA attributable to MPLX | $1.294 billion | $930 million |
| DCF attributable to GP and LP unitholders | $1.047 billion | $991 million |
Results include approximately $3.429 billion of impairments: $1.814 billion of goodwill, $1.264 billion of equity-method investments, and $351 million of long-lived assets and intangibles. The income statement’s $2.165 billion impairment-expense line excludes the equity-method impairment, which was recorded in income/(loss) from equity-method investments. Segment Adjusted EBITDA was $872 million for L&S, up from $559 million, and $422 million for G&P, up from $371 million; these measures exclude impairments and other specified items.
Cash and cash equivalents were $57 million at quarter-end, versus $15 million at December 31, 2019. Investing used $362 million and financing used $605 million. Total borrowings were $20.864 billion, including $750 million drawn on the revolving facility; reported long-term debt due after one year was $20.467 billion. Total liquidity, including cash, was $4.307 billion. MPLX reported compliance with its debt covenants, with a 3.8x debt-to-Consolidated-EBITDA ratio against a 5.0x limit.
Material changes versus the prior comparable period
- The sharp reported earnings decline primarily reflects pandemic- and market-related impairment charges. Revenue and other income fell by $1.243 billion, including the $1.264 billion equity-method investment impairment.
- Adjusted EBITDA attributable to MPLX rose $364 million, while DCF attributable to unitholders, including Predecessor results for comparison, increased $56 million.
- Operating cash flow increased $156 million; investing cash use declined $338 million, principally reflecting lower capital spending and other investment-related changes.
- End-quarter total assets declined to $37.006 billion from $40.430 billion at year-end, including lower goodwill and equity-method investment balances after impairments.
Outlook, commentary, risks and contingencies
- Management cited COVID-19 disruption, reduced fuel and midstream demand, commodity-price volatility, and lower producer drilling and production forecasts. It warned that further impairments and adverse effects on cash flows and liquidity could occur; the duration and ultimate economic impact were uncertain.
- MPLX announced plans to reduce 2020 capital spending to approximately $1.0 billion and forecast annual operating-expense reductions of approximately $200 million. It said the BANGL project would not proceed as planned while it worked to optimize existing capacity. No full-year earnings guidance is provided in the supplied filing text.
- The board declared a Q1 common-unit distribution of $0.6875 per unit, totaling approximately $728 million, payable May 15, 2020. Management stated that cash from operations, borrowing facilities and capital-market access were expected to meet funding needs, including distributions; distributions remain subject to available cash and board decisions.
- Ratings were investment grade but carried negative outlooks from Moody’s, S&P and Fitch. The $1.5 billion MPC revolving loan facility had no quarter-end balance, but MPC Investment may demand repayment before its July 2024 maturity.
- MPLX’s 9.19% indirect Bakken Pipeline interest carries a contingent equity contribution commitment. Following a court order for a full environmental impact statement and further briefing on the easement, potential undiscounted contributions were approximately $230 million if specified shutdown or permit outcomes occur.
- Environmental remediation accruals were $17 million. MPLX stated that ultimate remediation costs and certain litigation exposures could not be estimated clearly. A separate pipeline-safety matter was resolved for an approximately $236,000 penalty.
Most important facts for investors to verify
- Whether COVID-19, commodity prices and producer activity drive additional impairments, volume declines or pressure on cash generation.
- Progress against the approximately $1.0 billion 2020 capital-spending plan and the forecast $200 million operating-cost reduction.
- Distribution coverage and funding needs relative to DCF, debt maturities, available credit and the distribution declared after quarter-end.
- Whether the Bakken Pipeline litigation changes operating-permit status or triggers contributions under the contingent commitment.
- The assumptions and valuation headroom behind impairment tests, especially the Crude Gathering reporting unit, whose estimated fair value exceeded carrying value by 8.5%.