MPLX LP — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019; filed August 5, 2019. MPLX operates Logistics and Storage (L&S) and Gathering and Processing (G&P) businesses. Unless noted, figures are in U.S. dollars.
Financial performance and liquidity
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue and other income | $1.629 billion | $1.578 billion | $3.275 billion | $2.998 billion |
| Income from operations | $659 million | $608 million | $1.337 billion | $1.165 billion |
| Net income | $488 million | $456 million | $997 million | $879 million |
| Net income attributable to MPLX LP | $482 million | $453 million | $985 million | $874 million |
| Common-unit net income per unit, basic | $0.56 | $0.55 | $1.16 | $1.15 |
| Adjusted EBITDA attributable to MPLX LP (non-GAAP) | $920 million | $867 million | $1.850 billion | $1.627 billion |
| DCF (non-GAAP) | $741 million | $695 million | $1.498 billion | $1.314 billion |
- Q2 L&S Segment Adjusted EBITDA was $569 million, up $43 million; G&P was $351 million, up $10 million. Six-month segment EBITDA was $1.128 billion for L&S and $722 million for G&P.
- Six-month operating cash flow was $1.452 billion, versus $1.290 billion. Investing activities used $1.175 billion, including $884 million of property, plant and equipment additions and $310 million invested in unconsolidated affiliates. Financing activities used $346 million.
- At June 30, cash was $7 million; long-term debt on the balance sheet was $14.030 billion, with total borrowings of $14.473 billion before unamortized discounts and issuance costs. Revolver availability was $1.632 billion; total reported liquidity, including the MPC loan agreement and cash, was $2.595 billion.
- Debt-to-EBITDA covenant ratio was 3.70x against a 5.0x limit; MPLX reported covenant compliance. Total assets were $23.746 billion and total liabilities were $15.872 billion.
- Quarterly common-unit distribution declared for Q2 was $0.6675 per unit, up 1.5% from Q1 2019 and 6.4% from Q2 2018. MPC’s $12.5 million quarterly distribution waiver was to continue through 2019.
Material changes versus prior comparable periods
- Q2 revenue and other income increased $51 million; six-month revenue increased $277 million. Six-month results included Refining Logistics and Fuels Distribution for six months, compared with five months in the 2018 period, as well as higher transportation activity and G&P volume growth.
- Higher G&P volumes and service fees were partly offset by lower commodity prices. For Q2, G&P processing, fractionation and gathering volumes increased approximately 15%, 13% and 15%, respectively, year over year; lower prices reduced product-related revenue.
- Six-month interest expense, net of capitalized amounts, rose $65 million to $312 million, primarily reflecting financing costs related to senior notes. Depreciation and amortization increased $61 million to $425 million, mainly from acquisitions and assets placed in service.
- Six-month growth capital expenditures were $747 million, versus $924 million; total capital expenditures were $800 million, versus $982 million. The 2019 organic growth capital plan was $2.2 billion.
- MPLX adopted lease accounting on January 1, 2019, recording approximately $505 million of right-of-use assets and $502 million of lease liabilities. Management said adoption did not materially affect income, cash flow or equity.
Outlook, commentary, risks and unusual items
- Acquisition: MPLX completed its merger with Andeavor Logistics LP (ANDX) on July 30, 2019, after the reporting date. Public ANDX units converted at 1.135 MPLX units per unit; certain MPC-affiliate units converted at 1.0328. MPLX issued approximately 263 million common units and 600,000 Series B preferred units. The transaction was accounted for as a common-control transaction; preliminary pushed-down purchase-price information included $7.428 billion of goodwill and was not reflected in June 30 results.
- Following the merger, MPLX increased its revolving-credit capacity from $2.25 billion to $3.5 billion and extended the facility to July 30, 2024. ANDX’s $2.1 billion revolving facilities were repaid with revolver borrowings; the MPC intercompany loan capacity was increased to $1.5 billion on July 31.
- Management said existing and expected liquidity sources should be sufficient for funding needs, including capital expenditures and distributions, and stated its intention to maintain an investment-grade credit profile. Ratings at July 30 were Moody’s Baa2, S&P BBB and Fitch BBB, all with stable outlooks. These statements are not guarantees.
- The Whistler Pipeline received a final investment decision after sufficient firm transportation commitments were secured. The planned 475-mile, 42-inch pipeline is designed for approximately 2 Bcf/d from Waha, Texas, to Agua Dulce, Texas.
- Key merger-related risks include increased distribution requirements and dilution, potential credit-rating pressure and higher borrowing costs, integration and synergy shortfalls, unanticipated costs or liabilities, and possible impairment of goodwill or intangibles. The filing also identifies regulatory and operating risks, including approvals and requirements for acquired facilities on Native American tribal lands.
- Other contingencies include $16 million accrued for environmental remediation and a maximum potential undiscounted payment of approximately $230 million under a contingent equity contribution agreement for MPLX’s indirect Bakken Pipeline interest. MPLX had $528 million of contractual commitments to acquire property, plant and equipment. Management did not expect construction milestone penalties to be triggered.
- A Westcon settlement concerning the Bluestone processing complex was reached July 31, 2019; the filing says it is not expected to materially adversely affect MPLX. Other lawsuits and environmental matters remain subject to uncertain outcomes.
Most important facts for investors to verify
- Post-merger unit count, distribution coverage and the effect of the additional common and Series B preferred distributions on cash available to common unitholders.
- Debt, borrowing availability, leverage and credit ratings after ANDX debt repayment and the expanded revolving facility.
- Actual integration costs, realized synergies and whether the merger proves accretive or dilutive to earnings and cash flow per unit.
- Progress, spending and committed capacity for the $2.2 billion 2019 growth-capital plan, including Whistler and planned processing and fractionation expansions.
- Exposure to commodity-price changes, G&P customer volumes, MPC-related revenue concentration, and legal, environmental and tribal-land contingencies.