MPLX LP — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015. Unless noted, dollar amounts are in millions. MPLX is a fee-based midstream partnership operating crude oil and refined-product pipelines, storage assets, and a butane cavern. It reported one operating segment and owned a 99.5% interest in Pipe Line Holdings at quarter-end.
Financial performance and liquidity
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue and other income | $137.5 | $137.3 |
| Operating income | $51.2 | $56.3 |
| Operating margin | 37.2% | 41.0% |
| Net income | $45.9 | $55.7 |
| Net income attributable to MPLX LP | $45.6 | $34.2 |
| Limited partners’ net income | $41.6 | $33.2 |
| Net income per limited partner unit | $0.46 | $0.41 |
| Operating cash flow | $58.5 | $71.9 |
| Adjusted EBITDA attributable to MPLX LP (non-GAAP) | $64.2 | $43.8 |
| Distributable Cash Flow (non-GAAP) | $57.4 | $37.3 |
Revenue was nearly flat, while operating income fell 9% and operating margin narrowed. Higher general and administrative expense, other taxes, cost of revenues and interest costs contributed to the decline. MPLX-attributable net income rose despite lower consolidated net income, partly because the prior-year period included $21.5 million attributable to MPC’s retained interest, versus $0.3 million in Q1 2015 following MPLX’s increased ownership of Pipe Line Holdings. Pipeline throughput increased to 1.898 million barrels per day from 1.828 million; product-pipeline throughput rose to 886,000 barrels per day from 819,000.
Operating cash flow declined by $13.4 million year over year. Capital expenditures were $34.8 million, including $32.3 million for expansion and $2.5 million for maintenance. Cash increased to $132.5 million from $27.3 million at year-end 2014.
At March 31, total debt was $759.6 million, including $500 million of 4.00% senior notes due 2025, a $250 million term loan, and capital leases. The company had no borrowings under its $1.0 billion revolving facility. Total available liquidity, including cash and the unused $50 million Pipe Line Holdings facility, was $1.183 billion. Debt-to-Consolidated-EBITDA covenant leverage was 3.3x against a 5.0x limit; MPLX reported compliance. The filing reported investment-grade ratings with stable outlooks from Fitch, Moody’s and S&P.
Material changes and distributions
- In February 2015, MPLX issued $500 million of 4.00% senior notes due 2025, receiving approximately $495 million net proceeds; proceeds were used to repay revolver borrowings and for general partnership purposes. Net interest and other financial costs rose to $5.3 million from $0.6 million.
- Expansion capital spending increased substantially year over year, mainly for the Robinson, Illinois butane cavern and Patoka, Illinois tank expansion.
- Throughput growth and higher tariffs were offset by lower third-party crude volumes and lower revenue recognized from volume-deficiency credits.
- The board declared a $0.41 per-unit distribution, payable May 15, 2015. This was 25% above the Q1 2014 distribution of $0.3275 per unit. Q1 2015 distributions declared totaled $36.9 million; reported distributable cash flow was $57.4 million.
Outlook, related parties and risks
- Management’s initial 2015 capital plan was $260 million, including approximately $220 million of organic expansion projects and nearly $40 million of maintenance spending. The plan is subject to change.
- MPC authorized the proposed sale of its marine logistics business to MPLX. As of the filing, the transaction remained subject to MPLX board approval, a definitive agreement and customary closing conditions; a closing was expected in the following several months.
- MPC remained the dominant commercial counterparty: it accounted for 87% of revenue and other income in Q1 2015, or 93% including volumes under joint tariffs treated as third-party revenue. The filing describes long-term, fee-based agreements and minimum-volume commitments with MPC.
- MPC did not meet minimum-volume commitments on certain systems. MPLX received $12.6 million in deficiency payments, recognized $9.9 million of previously deferred credits as revenue, and reported $32.6 million of remaining volume-deficiency credits, scheduled to expire from June 2015 through March 2016.
- Environmental remediation liabilities were $2.1 million, compared with $0.6 million at year-end. The filing states that total potential remediation costs and penalties cannot presently be estimated. MPLX also disclosed an Illinois environmental lawsuit with an indeterminable possible loss; MPC agreed to indemnify MPLX for any damages for which MPL is held responsible.
- Contractual commitments to acquire property, plant and equipment were $61.5 million. Management cited risks including dependence on MPC agreements, project delays or cost overruns, operational interruptions, environmental regulation, capital-market access and distribution affordability. Management believed available liquidity and expected funding sources would meet requirements, but this is forward-looking and not a guarantee.
Important facts for investors to verify
- Whether the proposed MPC marine-business transaction receives approval, is finalized, and on what financial and operating terms.
- How MPLX manages its substantial MPC revenue concentration and whether minimum-volume commitments and related-party agreements remain in force.
- Actual expansion-capital spending, project timing and returns compared with the $260 million 2015 plan.
- Debt, covenant headroom and cash generation relative to distributions; the filing’s EBITDA and distributable cash flow measures are non-GAAP and should be considered alongside GAAP cash flow.
- Use or expiration of the $32.6 million of deferred volume-deficiency credits, and changes in environmental liabilities, legal exposures and contractual commitments.