MPLX LP — Form 10-Q Summary
Business and period: This filing covers the quarter and nine months ended September 30, 2014. MPLX is a fee-based midstream partnership operating crude oil and refined-products pipelines and storage assets. At quarter-end it owned a 69% general partner interest in Pipe Line Holdings; MPC retained 31%. MPC is also MPLX’s principal customer and sponsor.
Financial performance and liquidity
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Total revenues and other income | $138.0 million | $123.8 million | $409.2 million | $360.7 million |
| Operating income | $44.2 million | $39.8 million | $144.8 million | $110.5 million |
| Net income | $43.1 million | $39.2 million | $141.7 million | $109.3 million |
| Net income attributable to MPLX LP | $29.1 million | $21.5 million | $92.1 million | $57.7 million |
| Limited partner net income per unit | $0.37 | $0.29 | Common $1.16; subordinated $1.16 | Common $0.79; subordinated $0.74 |
| Adjusted EBITDA attributable to MPLX LP | $40.2 million | $30.5 million | $123.9 million | $82.3 million |
| Distributable Cash Flow attributable to MPLX LP | $33.4 million | $31.0 million | $106.9 million | $85.8 million |
- For the nine months, operating cash flow was $190.3 million, versus $167.1 million; investing cash outflow was $43.1 million, versus $81.0 million. Financing used $169.1 million, including distributions and the purchase of an additional Pipe Line Holdings interest. Cash declined $21.9 million to $32.2 million.
- At September 30, total debt was $265.0 million, including $255.0 million drawn on the revolving credit facility and $10.0 million of capital leases. Revolver availability was $245.0 million; a separate $50.0 million MPC-affiliate revolver was undrawn. The debt/Consolidated EBITDA covenant ratio was 1.7x, against a 5.0x limit (temporarily 5.5x for certain acquisitions).
- Current assets were $105.5 million and current liabilities $90.8 million. Capital expenditures for the nine months were $54.0 million, including $17.4 million maintenance and $36.6 million expansion spending. The revised 2014 capital budget was $110 million.
Changes versus comparable periods
- Nine-month revenue rose $48.5 million and net income rose $32.4 million year over year. Growth in related-party sales, higher tariffs, and recognition of volume-deficiency credits were key contributors.
- Pipeline throughput fell: Q3 total throughput was 1.887 million barrels per day versus 2.006 million; the nine-month average was 1.864 million versus 2.011 million. Higher average tariffs partly offset lower volumes.
- Nine-month capital expenditures were lower than the prior year ($54.0 million versus $86.0 million), while cash distributions declared increased to $79.4 million from $64.5 million.
- In March, MPLX acquired a further 13% of Pipe Line Holdings from MPC for $310 million, financed with $40 million cash and $270 million of revolver borrowings, bringing ownership to 69%.
Outlook, risks and unusual items
- Management said it intended to grow the partnership and maintain an attractive long-term distribution growth profile, but provided no specific earnings or cash-flow guidance. The October 21, 2014 distribution declaration was $0.3575 per unit, 4% above the prior quarter and 20% above Q3 2013. The filing states the distribution is not otherwise a legally guaranteed amount per unit.
- MPC’s board authorized sale of its remaining 31% Pipe Line Holdings interest to MPLX. The transaction remained subject to MPLX board approval and was expected to be funded with a combination of debt and equity, potentially including sponsor transactions.
- MPC accounted for 86% of revenue and other income in the first nine months of 2014. MPC missed minimum volume commitments on certain systems; $29.5 million of related deferred-revenue deficiency credits remained at quarter-end. Credits are recognized as revenue when used, no longer physically usable, or expired.
- Management cited risks including reduced or terminated MPC commitments, lower pipeline volumes or demand, competition, operational interruptions, environmental regulation, and the ability to execute growth projects and obtain financing. MPLX reported minimal direct commodity-price exposure because it transports and stores customer-owned products.
- Environmental remediation accruals were $1.0 million, with up to $0.4 million of additional reasonably possible loss identified. A pending Illinois environmental contribution case has an uncertain outcome; MPC agreed to indemnify MPLX for any damages attributable to MPL. Contractual commitments to acquire property, plant and equipment were $29.2 million.
- MPLX changed its Distributable Cash Flow calculation beginning Q3 to use net interest and other financial costs instead of cash interest paid, net; comparative periods were recalculated. Management said adoption of the new revenue-recognition standard was not expected to materially affect results, financial position, or cash flows.
Investor facts to verify
- Whether the proposed acquisition of MPC’s remaining 31% interest was approved, its final consideration, and the debt/equity funding mix.
- Whether lower throughput persists and how much future revenue depends on MPC and volume-deficiency credits.
- Distribution coverage and funding needs relative to planned capital spending, the distribution-growth objective, and revolving-credit capacity.
- Progress on the $29.2 million of committed projects, the Patoka tank expansion, and the $110 million 2014 capital budget.
- Developments in environmental remediation and the Illinois litigation, including the scope and enforceability of MPC indemnification.