MPLX LP — Q3 2022 Form 10-Q
Business and period: MPLX is a midstream energy partnership sponsored by Marathon Petroleum Corporation (MPC), with Logistics and Storage (L&S) and Gathering and Processing (G&P) segments. This unaudited filing covers the quarter and nine months ended September 30, 2022; comparisons are with the corresponding 2021 periods. Amounts below are in millions except per-unit data and operating statistics.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue and other income | $3,401 | $2,559 | $8,951 | $7,293 |
| Income from operations | $1,674 | $1,031 | $3,851 | $2,936 |
| Net income attributable to MPLX | $1,428 | $802 | $3,128 | $2,247 |
| Common limited partners’ net income per unit | $1.36 | $0.74 | $2.97 | $2.07 |
| Adjusted EBITDA attributable to MPLX | $1,471 | $1,389 | $4,321 | $4,115 |
| DCF attributable to GP and LP unitholders | $1,231 | $1,143 | $3,615 | $3,468 |
| Cash from operating activities | $1,039 | $1,182 | $3,651 | $3,671 |
The filing reports no single consolidated margin measure. Segment Adjusted EBITDA was $969 for L&S and $502 for G&P in Q3 2022, versus $904 and $485, respectively, in Q3 2021. Q3 DCF before preferred-unit distributions was $1,264; after $33 of preferred distributions, DCF attributable to GP and LP unitholders was $1,231.
Q3 revenue and other income included a $509 non-cash gain from a lease reclassification. Excluding this gain from Adjusted EBITDA, the measure increased $82 year over year. Q3 distributable cash flow coverage was 1.58x, and adjusted free cash flow after distributions was $22. For the first nine months, adjusted free cash flow after distributions was $728.
Liquidity, debt and capital returns
- At September 30, cash was $121; total debt was $20,108, including $982 due within one year. Long-term debt due after one year was $18,797.
- Total reported liquidity was $3.621 billion: $2.0 billion available under the revolving credit agreement, $1.5 billion under the MPC loan agreement, and $121 of cash. Neither facility had borrowings outstanding; less than $1 million of letters of credit used revolver capacity.
- The new $2.0 billion unsecured revolving credit facility matures in July 2027. MPLX reported compliance with its debt covenants and a consolidated total debt-to-EBITDA ratio of 3.50x, against a 5.0x maximum (with specified acquisition-related provisions).
- MPLX issued $1.5 billion of 4.95% notes due 2052 and $1.0 billion of 4.95% notes due 2032. Proceeds funded repayments and redemption of $1.0 billion of notes bearing 3.375% and 3.50% coupons.
- It repurchased approximately 6 million common units for $180 in Q3 and approximately 10 million for $315 in the first nine months. The board authorized an additional $1.0 billion repurchase program in August; $1.006 billion remained under the authorizations at quarter-end.
- On November 1, MPLX declared a Q3 distribution of $0.7750 per common unit, up 10% from the prior quarter, totaling $777. The prior-year comparison of $1.28 per unit included a $0.575 supplemental distribution.
Changes, outlook and risks
- Q3 revenue rose $842 year over year, driven in significant part by the $509 lease gain and by higher G&P volumes and prices. Nine-month revenue increased $1,658, with higher G&P prices and volumes, higher equity-method income and stronger L&S service revenue also contributing.
- Adjusted EBITDA and DCF increased more modestly than reported net income, reflecting the exclusion of the one-time lease gain. Operating cash flow was nearly flat for the nine-month period, while investing cash use increased to $676 from $377, primarily due to higher capital spending and affiliate investments.
- Management described recovering demand, improved throughputs and higher natural gas and NGL prices as supportive of results. It also cited higher labor and materials costs, inflation, rising interest rates and recession concerns, and stated it is focused on capital discipline, cost control and portfolio optimization. No quantified full-year earnings or distribution guidance is provided in the supplied filing text.
- The initial 2022 capital investment plan was $900, including $700 of growth capital, $140 of maintenance capital and a $60 Bakken Pipeline joint-venture investment. Management said it continually evaluates the plan.
- MPC held approximately 64% of common units and remains a major commercial counterparty. MPC-related revenue represented 46% of total revenue and other income in both Q3 and the nine-month period, excluding the lease gain. Six transportation agreements with MPC were extended through 2032, with possible renewal terms.
- Key exposures include commodity prices, throughput and customer activity, inflation and interest rates, environmental requirements, operational interruptions, regulatory developments and litigation. MPLX disclosed a $22 environmental remediation accrual. It also described a pipeline release near Edwardsville, Illinois, as contributing to higher remediation costs.
- MPLX’s 9.19% indirect interest in the Bakken Pipeline system carries a contingent equity contribution exposure estimated at up to $170. The pipeline remains operational; the Army Corps expected a draft environmental impact statement in the first half of 2023. A separate Tesoro High Plains Pipeline dispute includes government counterclaims seeking profit disgorgement, pipeline removal and remediation; the company says it intends to defend the claims, and the filing does not provide a clear estimate of potential loss.
Important facts for investors to verify
- How much reported earnings growth is attributable to the $509 non-cash lease gain, and how do recurring operating and cash-flow trends compare?
- Whether G&P revenue and EBITDA remain resilient if commodity prices, volumes or product margins weaken, and whether cost inflation continues.
- Debt maturities, refinancing costs and leverage under the new facility, alongside the effect of higher rates on future borrowing costs.
- Distribution coverage and cash available after distributions, growth investment and unit repurchases; the declared distribution is not a guarantee of future payments.
- Developments in the Dakota Access and Tesoro High Plains matters, including potential funding requirements, operating impacts and any change in estimated exposure.
- The extent of MPC counterparty concentration and the continued terms and performance of its commercial agreements with MPLX.