MPLX LP — 2014 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2014. The filing is an annual report, not a standalone Q4 filing; selected unaudited Q4 results are included. Dollar amounts are in millions unless stated otherwise.
Business context
MPLX is a fee-based master limited partnership that transports and stores crude oil, refined products and other hydrocarbons. At year-end, it owned a 99.5% indirect general partner interest in Pipe Line Holdings, whose assets include about 1,004 miles of crude oil pipelines, 1,902 miles of product pipelines, storage facilities and a barge dock, plus a wholly owned butane cavern. Long-term contracts with minimum-volume commitments support revenue, but Marathon Petroleum Corporation (MPC) is the dominant customer and sponsor.
Financial results and liquidity
| Metric | 2014 | 2013 |
|---|---|---|
| Total revenue and other income | $548.3 | $486.3 |
| Income from operations | $183.3 | $147.0 |
| Operating margin, approximate | 33.4% | 30.2% |
| Net income | $178.1 | $146.1 |
| Net income attributable to MPLX LP | $121.3 | $77.9 |
| Adjusted EBITDA attributable to MPLX LP | $166.3 | $111.2 |
| Distributable Cash Flow attributable to MPLX LP | $138.5 | $114.1 |
| Cash from operating activities | $246.8 | $212.2 |
| Cash capital expenditures | $78.6 | $106.5 |
| Long-term debt, including capital leases | $644.8 | $10.5 |
Cash was $27.3 at year-end, down from $54.1. Available capacity under revolving facilities was $665.0, for total stated liquidity of $692.3. The credit agreement’s leverage covenant was 5.0x (temporarily 5.5x after certain acquisitions); reported leverage was 2.8x and the Partnership was in compliance. Debt was principally variable-rate; management estimated that a 100-basis-point rate change would affect annual net income by about $2.6.
Annual distributions declared per common unit rose to $1.4100 from $1.1675. The Q4 distribution was $0.3825 per unit, compared with $0.3125 a year earlier; it was paid in February 2015.
Material changes and Q4 comparison
- Annual revenue increased about 13%, operating income about 25%, and net income attributable to MPLX LP about 56%. Adjusted EBITDA and distributable cash flow also increased. Results are affected by acquisitions and ownership changes, including MPLX’s increase in Pipe Line Holdings ownership to 99.5% on December 1, 2014; periods are therefore not fully comparable.
- Average combined crude and product throughput fell to 1.919 million barrels per day from 1.986 million. Higher tariffs and deficiency-related revenue partly offset lower volumes.
- Q4 2014 revenue was $131.9 versus $118.9 in Q4 2013; operating income was $38.5 versus $36.5; net income was $36.4 versus $36.8; and net income attributable to MPLX LP was $29.2 versus $20.2. Common-unit basic earnings were $0.38 versus $0.27.
- MPLX acquired additional interests in Pipe Line Holdings during 2014 for total stated consideration of $1.11 billion: $310.0 in March and $800.0 in December. The December transaction included $600.0 of cash and $200.0 in units issued to MPC. A December public unit offering generated $221.3 net proceeds.
- Debt rose sharply to fund growth: at year-end MPLX had $385.0 outstanding on a $1 billion revolver and a fully drawn $250 million term loan. On February 12, 2015, after year-end, it issued $500 million of 4% senior notes due 2025 and used net proceeds to repay revolver borrowings and for general purposes.
Outlook, commentary and risks
Management announced an accelerated-growth strategy aimed at building a larger, more diversified MLP and increasing its ability to fund projects and pursue acquisitions independently. It targeted average annual distribution growth in the mid-20% range over the following five years; this is a forward-looking objective, not a guarantee. The 2015 capital plan was $260 million, including about $220 million for expansion projects such as the Cornerstone Pipeline and Utica build-out, Patoka-to-Lima capacity expansion and Robinson butane cavern.
- MPC accounted for approximately 86% of 2014 revenue and other income, excluding certain joint-tariff revenue classified as third-party revenue. MPC-related disruption, refinery closures, contract changes or financial deterioration could materially affect results and distributions.
- Minimum-volume commitments generated deficiency payments when MPC shipped below contractual levels. At year-end, deferred revenue related to volume deficiencies was $29.9; credits can offset future shipments and reduce cash receipts for those volumes.
- Key risks include pipeline incidents and outages, environmental and safety regulation, tariff challenges, project delays or cost overruns, access to financing and capital markets, interest-rate exposure, and conflicts of interest arising from MPC’s control and related-party arrangements.
- Environmental remediation liabilities accrued were $0.6, with reasonably possible additional losses estimated up to $0.3. A pending Illinois environmental contribution lawsuit has no estimable loss range; MPC agreed to indemnify MPLX for any losses in that matter. Management stated other pending proceedings were not expected to have a material adverse effect.
- The independent auditor gave an unqualified opinion, and management and the auditor concluded internal control over financial reporting was effective as of year-end.
Important facts for investors to verify
- How much of the reported earnings and cash-flow growth reflects the increased ownership of Pipe Line Holdings versus underlying operating performance.
- Whether expansion projects meet cost, schedule and return expectations, and whether the announced distribution-growth target remains supportable by distributable cash flow.
- MPC’s ongoing ability and willingness to meet minimum commitments, and the timing and use of outstanding deficiency credits.
- Current debt, revolver availability, variable-rate exposure and covenant headroom after the February 2015 notes issuance and debt repayment.
- Developments in the Illinois litigation, environmental obligations and regulatory matters, including any changes to estimates or indemnification coverage.