MPLX LP — Q3 2019 Form 10-Q Summary
Business context and period. MPLX operates Logistics and Storage (L&S) and Gathering and Processing (G&P) businesses. This unaudited report covers the three and nine months ended September 30, 2019. MPLX completed its Andeavor Logistics (ANDX) merger on July 30, 2019; because the transaction was treated as a common-control transfer, prior periods were retrospectively adjusted from October 1, 2018. Reported year-over-year growth therefore reflects a materially expanded business and is not fully comparable on a standalone basis.
Financial and operating highlights
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue and other income | $2.280bn | $1.712bn | $6.725bn | $4.710bn |
| Income from operations | $926m | $672m | $2.723bn | $1.837bn |
| Net income | $689m | $516m | $2.035bn | $1.395bn |
| Net income attributable to MPLX LP | $629m | $510m | $1.614bn | $1.384bn |
| Common-unit earnings | $0.61 | $0.62 | $1.78 | $1.77 |
| Operating cash flow | Not provided separately | Not provided separately | $2.990bn | $2.027bn |
Operating margin was approximately 40.6% in Q3 2019 versus 39.3% in Q3 2018. Nine-month operating margin was approximately 40.5% versus 39.0%. Interest expense rose to $212m in Q3 from $134m and to $640m for the nine months from $381m.
- Non-GAAP measures: Q3 Adjusted EBITDA attributable to MPLX LP, excluding Predecessor results, was $1.165bn versus $937m; nine-month results were $3.015bn versus $2.564bn. DCF attributable to GP and LP unitholders, including Predecessor results, was $997m for Q3 versus $747m, and $2.963bn for nine months versus $2.025bn. These measures are not GAAP substitutes.
- Segments: Q3 Segment Adjusted EBITDA was $766m for L&S and $399m for G&P, compared with $547m and $390m, respectively. G&P product-related revenue was pressured by lower prices; growth in service revenue and throughput partly offset this.
- Cash investment: Nine-month investing cash outflow was $2.189bn, including $1.720bn of property and equipment additions and $494m of equity-method investments. Reported growth capital expenditures were $1.479bn; maintenance capital expenditures were $174m before reimbursements.
- Debt and liquidity: Total borrowings were $20.120bn at September 30, 2019, versus $18.866bn at year-end 2018; long-term debt on the balance sheet was $19.190bn. Cash was $41m. Available liquidity, including cash, was $5.413bn. MPLX reported a 3.80-to-1 debt-to-EBITDA covenant ratio and compliance with its covenants.
- Distribution: MPLX declared a Q3 common-unit distribution of $0.6775, up 1.5% from Q2 2019 and 6.3% from Q3 2018. Total Q3 common and preferred distributions were $734m.
Material changes and management commentary
- Reported Q3 revenue increased $568m, with approximately $611m attributed to ANDX; reported nine-month revenue increased $2.015bn, including $1.791bn from the merger. Management cited volume and fee growth, but lower G&P product prices offset some gains.
- For an illustrative pro forma comparison assuming the merger had occurred January 1, 2018, revenue was $2.280bn versus $2.312bn in Q3 and $6.725bn versus $6.371bn for nine months; net income attributable to MPLX LP was $681m versus $679m and $2.015bn versus $1.840bn, respectively. These unaudited figures include specified accounting and transaction adjustments.
- Following the merger, MPLX increased revolving-credit capacity to $3.5bn and extended its maturity to July 2024; issued $2.0bn of floating-rate notes; and drew $500m under a term loan by September 30. The remaining $500m term-loan capacity was drawn after quarter-end, and $500m of ANDX notes due 2019 was repaid October 15.
- MPC formed a special committee to evaluate strategic alternatives for its midstream business, of which MPLX is the primary component. The review could affect MPLX’s strategic direction, unit price, personnel, costs, and credit ratings; no transaction is assured. Moody’s outlook was negative as of November 1, while S&P and Fitch outlooks were stable.
- MPLX stated it expects operating cash flow and borrowing capacity to fund operations, capital requirements, contractual obligations, and distributions, and intends to maintain an investment-grade credit profile. The filing provides no specific full-year financial guidance.
Risks, contingencies, and unusual items
- Approximately $11.9bn of future purchase obligations were assumed in the merger, including fuel supply, NGL transportation, fractionation, and fixed charges with MPC. Property and equipment purchase commitments were $788m at quarter-end.
- MPLX’s maximum potential undiscounted contribution under the Bakken Pipeline contingent equity agreement was approximately $230m. Environmental remediation accruals were $19m; management said the ultimate total exposure cannot presently be estimated.
- Westcon construction litigation remained partly unresolved after a July settlement covering Bluestone; MPLX said the settlement was not expected to have a material adverse effect. Other legal matters remain subject to uncertainty. MPLX also disclosed a contingent natural-gas purchase commitment embedded in a keep-whole contract, valued as a $54m liability.
- Related-party exposure is significant: MPC held approximately 63% of common units and accounted for 54% of Q3 revenue and other income, excluding specified joint-tariff volumes. MPC may demand repayment of outstanding MPC Loan Agreement borrowings before the stated 2024 maturity.
- Commodity prices, producer activity and volumes, project execution, operating interruptions, regulation, environmental costs, capital-market access, and MPC’s strategic review are identified risks. MPLX had no open commodity hedges beyond the embedded derivative.
Important facts for investors to verify
- Assess post-merger operating performance using pro forma or segment results, separating acquired scale from organic volumes, fees, and commodity-price effects.
- Track debt, floating-rate exposure, refinancing needs, covenant headroom, and the effect of the negative Moody’s outlook and MPC strategic review.
- Evaluate whether operating cash flow and DCF can sustain distributions while funding growth and maintenance capital, debt service, and assumed purchase obligations.
- Review the terms and credit dependence of MPC commercial, service, lease, and loan arrangements, given MPC’s ownership and revenue contribution.
- Monitor integration, capital-project commitments, legal and environmental exposures, and the $230m contingent Bakken contribution obligation.