MPLX LP — FY2020 Form 10-K
Reporting period: Year ended December 31, 2020; filed February 26, 2021. This is an annual filing, not a standalone Q4 report. MPLX operates Logistics and Storage (L&S) and Gathering and Processing (G&P) businesses and is majority-owned by Marathon Petroleum Corporation (MPC).
Financial and operating performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue and other income | $7.569 billion | $9.041 billion |
| Income from operations | $211 million | $2.377 billion |
| Net income (loss) | $(687) million | $1.462 billion |
| Net income (loss) attributable to MPLX | $(720) million | $1.033 billion |
| Operating cash flow | $4.521 billion | $4.082 billion |
| Capital expenditures added to PP&E | $1.183 billion | $2.408 billion |
| Adjusted EBITDA attributable to MPLX (non-GAAP) | $5.211 billion | $4.334 billion |
| DCF attributable to GP and LP unitholders (non-GAAP) | $4.200 billion | $3.978 billion |
| Common-unit distributions declared | $2.872 billion; $2.75 per unit | $2.635 billion; $2.69 per unit |
- Revenue declined about 16%; income from operations fell sharply, and MPLX reported a full-year net loss. The filing attributes the result mainly to impairment charges, not solely to operating cash performance.
- FY2020 impairment charges included $1.814 billion of goodwill, $177 million of intangibles, $174 million of property and equipment, and $1.264 billion of equity-method investments. The equity-investment impairment is reflected in loss from equity-method investments; total impairments disclosed were $3.429 billion.
- Segment Adjusted EBITDA was $3.488 billion for L&S, up from $2.748 billion, and $1.723 billion for G&P, up from $1.586 billion. G&P reported a $1.090 billion loss from equity-method investments, including the impairments.
- Operating cash flow rose $439 million year over year. Free cash flow, as defined by MPLX, was $3.272 billion; excess cash flow after common and preferred distributions was $266 million, versus a $1.881 billion deficit in 2019.
- At December 31, 2020, total assets were $36.414 billion, long-term debt including finance leases was $19.375 billion, and cash was $15 million. Reported total debt principal was approximately $20.5 billion. Available liquidity was $4.840 billion, including $3.325 billion available under the revolving facility and $1.500 billion under the MPC loan agreement.
- Fourth-quarter 2020 revenue and other income was $2.249 billion, operating income $920 million, net income $700 million, and net income attributable to MPLX $691 million. Common-unit earnings were $0.63; the declared distribution was $0.6875 per unit.
Material changes and transactions
- COVID-19-related economic disruption and lower commodity prices contributed to reduced demand, lower throughput in several G&P regions, revised producer forecasts, and significant first-quarter impairment testing.
- MPLX reduced planned 2020 capital spending by approximately $700 million from its initial plan. Capital expenditures fell to $993 million on the filing’s growth-and-maintenance measure, from $2.737 billion in 2019.
- In August, MPLX issued $3 billion of senior notes at 1.750% due 2026 and 2.650% due 2030, using proceeds to repay or redeem higher-cost debt and reduce revolver borrowings. It also repaid its $1 billion term loan and redeemed $1 billion of floating-rate notes due 2021.
- In July, MPLX transferred its Western wholesale distribution business to MPC in exchange for redemption of 18.6 million MPLX common units valued at $340 million. It repurchased about 1.47 million public common units for $33 million during 2020 under a new $1 billion authorization.
- MPLX maintained its quarterly common distribution at $0.6875 per unit throughout 2020. A $0.6875 distribution for Q4 was paid February 12, 2021.
Outlook, risks, contingencies, and unusual items
- Management’s stated priorities include cost discipline, portfolio optimization, stable fee-based cash flows, and excess free cash flow after capital investments and distributions in 2021. The 2021 capital plan was $800 million growth and $165 million maintenance spending; plans may change with conditions.
- Planned projects included the Wink-to-Webster crude pipeline and Whistler natural-gas pipeline, both expected in service in 2021, and G&P processing expansions. The Javelina plant sale closed February 12, 2021.
- MPC is a major concentration: it accounted for 55% of consolidated revenue and other income in 2020; approximately 92% of L&S operating revenue came from MPC. This relationship supports contracted volumes but exposes MPLX to MPC’s operations, credit, and strategic decisions.
- In the Dakota Access Pipeline matter, the pipeline remained operational at filing, but the easement was vacated pending an environmental impact statement. MPLX disclosed maximum potential undiscounted contributions of approximately $230 million under a contingent equity agreement if specified events occur.
- A Bureau of Indian Affairs order concerning the Tesoro High Plains Pipeline found trespass on a portion crossing Fort Berthold Reservation, assessed approximately $4 million in damages (paid), and required cessation of use of the affected portion. A landowner lawsuit was filed in February 2021; MPLX said it was pursuing settlement.
- Other key risks include further impairments, producer volume and commodity-price exposure, customer and joint-venture counterparty risk, environmental and pipeline-safety regulation, litigation, and LIBOR transition. Moody’s, Fitch, and S&P ratings were investment grade but carried negative outlooks as of February 2021. MPLX reported compliance with its credit covenants at year-end.
- PwC issued an unqualified opinion on the financial statements and internal controls. The auditor identified goodwill impairment testing and the MarkWest Utica EMG investment impairment as critical audit matters because of the judgment involved in forecasts, particularly future volumes.
Investor verification priorities
- Review the impairment assumptions and subsequent operating evidence for G&P assets, goodwill, and equity-method investments.
- Assess whether DCF and excess cash flow support the distribution, planned capital spending, and unit repurchases; these are non-GAAP measures.
- Monitor MPC’s financial and operating health and the extent to which minimum-volume commitments protect MPLX if volumes weaken.
- Track debt maturities, refinancing costs, credit-rating outlooks, and the availability and terms of related-party liquidity.
- Follow Dakota Access permitting and shutdown proceedings, the Tesoro High Plains Pipeline land-rights dispute, and related potential cash exposure.