MPLX LP — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2013. MPLX is a fee-based midstream partnership operating crude-oil and refined-product pipelines, storage assets, a barge dock and a butane cavern. MPC is its principal customer and related party. Comparisons with 2012 require caution: the prior-period figures are for the Predecessor, while 2013 includes MPLX’s post-IPO structure and a different ownership share of Pipe Line Holdings.
Financial results
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue and other income | $123.8 million | $121.1 million | $360.7 million | $333.6 million |
| Operating income | $39.8 million | $36.3 million | $110.5 million | $100.7 million |
| Net income | $39.2 million | $36.9 million | $109.3 million | $101.9 million |
| Net income attributable to MPLX LP | $21.5 million | $36.9 million | $57.7 million | $101.9 million |
| Adjusted EBITDA attributable to MPLX LP | $30.5 million | $45.7 million | $82.3 million | $128.5 million |
| Distributable cash flow attributable to MPLX LP | $31.1 million | Not presented | $86.3 million | Not presented |
Q3 operating margin was approximately 32% of reported revenue. Q3 consolidated revenue increased about 2% and operating income about 10% year over year; nine-month revenue increased about 8% and operating income about 10%. The lower MPLX-attributable income and Adjusted EBITDA versus 2012 largely reflect the 2013 noncontrolling-interest deductions for MPC’s retained interest, whereas 2012 Predecessor results reflected 100% of the relevant operations. These comparisons are therefore not like-for-like.
Pipeline throughput in Q3 totaled 2.006 million barrels per day, down 174 thousand barrels per day from the prior-year period; crude throughput was 1.093 million barrels per day and product throughput was 913 thousand. Average total pipeline tariff rose to $0.59 per barrel from $0.56. The filing attributes revenue growth chiefly to higher tariffs, partly offset by lower shipped volumes.
Cash, debt and distributions
- Nine-month operating cash flow was $167.1 million, compared with $121.8 million in the prior-year period. Capital additions to property, plant and equipment were $81.0 million; total capital expenditures, including accrual changes and asset-retirement expenditures, were $86.0 million.
- Investing cash outflow was $81.0 million. Financing cash outflow was $215.9 million, including $100.0 million used to acquire an additional 5% interest in Pipe Line Holdings, $59.9 million of distributions to MPC’s retained interest and $55.4 million of distributions to unitholders and the general partner.
- Cash was $86.9 million at September 30, 2013, down from $216.7 million at December 31, 2012. Current assets were $155.6 million and current liabilities $85.6 million.
- Total debt was $10.7 million, consisting of a capital lease obligation; $0.7 million was due within one year. The $500 million revolving facility had no borrowings or letters of credit outstanding. MPLX reported a 0.1-to-1.0 debt-to-Consolidated-EBITDA covenant ratio and compliance with covenants.
- Q3 limited-partner earnings were $0.29 per unit. The declared quarterly distribution was $0.2975 per unit, totaling $22.5 million. Management stated an intention to maintain annual distribution growth of 15%–20% for at least several years; this is forward-looking, not a guarantee.
Changes, outlook and risks
- Effective May 1, 2013, MPLX acquired another 5% of Pipe Line Holdings from MPC for $100 million in cash, raising its interest to 56%; MPC retained a 44% noncontrolling interest.
- MPC did not meet minimum shipment commitments on certain systems. Deferred revenue related to deficiency payments was $27.1 million at quarter-end, including a $9.0 million Q3 deficiency. These payments are recognized as revenue later when credits are used, become unusable or expire, but are included in the Partnership’s Distributable Cash Flow measure in the deficiency period.
- MPLX and MPC were developing an Utica shale pipeline project connecting eastern Ohio production facilities with MPC’s Canton refinery and other MPLX pipelines. The filing also notes truck-to-barge operations at Wellsville and a Canton truck-unloading facility began service in October 2013.
- Management said available operating cash, the revolver and potential debt or equity issuances were expected to fund liquidity needs, capital requirements and distributions. The original 2013 capital budget was $142.5 million; the filing says it is subject to ongoing evaluation. Capital commitments to acquire property, plant and equipment were $13.3 million at September 30.
- Key exposures include reliance on MPC, which accounted for 82.3% of revenue and other income in the first nine months of 2013; possible suspension, reduction or termination of MPC obligations under specified contractual events; project execution and financing risks; and environmental regulation and remediation.
- Environmental remediation accruals were $1.5 million, with reasonably possible additional losses estimated up to $0.4 million beyond accruals. The filing says the ultimate costs cannot currently be estimated. In an Illinois environmental contribution lawsuit, MPL’s outcome and potential liability were undetermined; MPC agreed to indemnify MPL for any damages for which it is found responsible. Vehicle lease guarantees had maximum potential undiscounted payments of $1.4 million.
- The Partnership reported no off-balance-sheet arrangements and no material change in internal controls during the quarter. Management concluded disclosure controls were effective as of September 30, 2013.
Facts investors should verify
- How MPC’s shipment levels, deficiency credits and continuing customer concentration affect future recognized revenue and cash distributions.
- Whether the reported Adjusted EBITDA and Distributable Cash Flow trends remain comparable after accounting for ownership changes and the Predecessor-period differences.
- Execution, cost and timing of the Utica project, SCADA upgrade and other planned capital work, together with actual capital spending.
- Whether operating cash generation supports the stated distribution-growth objective while maintaining liquidity and covenant headroom.
- Developments in the Illinois litigation, environmental remediation exposure and MPC indemnification obligations.