Q4 2019 Earnings Call
Welcome to the M.P.L. exports quarter 20 night team earnings call. My name is Sheila and I will be the operator for today's call. At this time all participants are in listen only mode. Later, we will conduct a question answer session Press Star one on your Touchtone phone to enter the Q. Please note that this conference is.
In recorded.
I will now turn the call over to Jim Melanie see Jim you may begin.
Good morning, and welcome to the MPLX fourth quarter 2019 earnings webcast and conference call. The synchronized slides that accompany this call can be found on MPLX dot com under the investors tab.
On the call today, our Mike Hennigan, President and CEO , Pam Beall, Chief Financial Officer, and other members of the management team.
As you know Kristina Kazarian typically hosting this call I'm doing that today, because kristina celebrating the arrival of baby girl, a week and a half ago, Kristina and baby Agnes are doing well.
We invite you to read the safe Harbor statements a non-GAAP disclaimer on slide two it's a reminder, that we will be making forward looking statements during the call and during the question and answer session that follows actual results may differ materially from what we expect today.
Factors that could cause actual results to differ are included there as well as in our filings with the FCC.
Now I'll turn over the call to Mike Hennigan for opening remarks, and fourth quarter highlights.
Thanks, Jim Good morning, and thank you for joining our call.
Pleased to report the MPLX delivered excellent results with fourth quarter, adjusted EBITDA of $1.3 billion and distributable cash flow of $1 billion, which provide a continued strong distribution coverage of 1.4 times and leverage of 4.1 times.
Full year, adjusted EBITDA was $5.1 billion, including the results of endeavor endeavor logistics.
Supporting the return of capital of approximately $3 billion to our unitholders.
Mpcs Board of Directors Midstream Special Committee is advancing its work and we continue to expect Mpcs board to provide an update during the first quarter.
We have also continues to progress or slate of high return logistics and storage projects in the Permian to Gulf Coast Carter.
In addition, we are again updating our 2020 growth capital target.
Last quarter, we guided to a target of approximately $2 billion down from the $2.6 billion estimate when the merger with a index came together.
We are now guiding to a target of approximately $1.5 billion for 2020.
This reduction shows our continued commitment to high grade our project portfolio, focusing on the highest returns and maximizing long term value creation.
As our earnings continue to grow and we continue to be disciplined in our approach to capital investment we will be targeting positive free cash flow generation after both capital investments and distributions in 2021.
This inflection is expected to allow both the funding of our distribution and capital program entirely from internal generated cash flow and provide us improved capital allocation flexibility for unit buybacks were debt reduction.
Turning to slide floor, we can discuss this plan a little more detail.
In 2019, our operating cash flow of over $4 billion supports the returns of capital of approximately $3 billion to our unitholders as a result, we funded our growth capital program with retain cash and debt.
For several years, we have been committed to funding our growth project portfolio from a combination of debt and operating cash flow.
Given our attractive growth capital project portfolio, we have historically funded around 50% of our growth needs with debt.
We've done so while maintaining healthy distribution coverage of around 1.4 times and investment grade leverage of approximately four times.
Looking forward, we expect to achieve positive free cash flow net of both capital investments and distributions in 2021.
This is expected to be achieved through a combination of continued earnings growth and continued high grading of our capital our growth capital plan through strict investment discipline.
As a result, we believe the we will be positioned to pursue incremental capital allocation opportunities, including leverage reduction or unit repurchases broadening our value creation options and enhancing long term flexibility.
On slide five you can see the highlights related to further optimization of our growth capital portfolio.
As I mentioned last quarter, our first priority following the combination with a index was to high grade the combined capital portfolio and at that time, we announced a 2020 growth capital target of approximately $2 billion. We've since identified additional opportunities to further streamline our growth capital expenditures focusing on the most the track.
The returns.
We're now targeting growth capital of approximately $1.5 billion were 2020 and approximately $1 billion for 2021.
As you saw in the previous slide these targeted reductions are an important element of our plan to achieve excess positive cash flow after capital investments and distributions in 2021.
We will continue to emphasize the growth of our logistics in storage segment, our growth capital, we'll remain focused on advancing our strategy of creating integrated crude oil and natural gas logistics systems from the Permian to the U.S. Gulf Coast.
In in our gathering and processing business, we will continue plans investments in infrastructure on it just in time basis to support the evolving growth plans of our producer customers.
As we look forward, we expect slowing volume growth in the northeast will allow our portfolio premier assets in the region to continue to deliver positive cash flow, which can be deployed to our other strategic investments, especially in the Permian.
In 2020, we expect the completion of our Mount Airey terminal expansion in our Alan as segment, along with significant progress for our major Permian projects.
As we look forward to 2021, we expect to completion of our crude oil natural gas and NGL pipeline projects in the Permian and the generation of cash flow from these assets.
Now, let me turn the call over to Pan to discuss our fourth quarter and full year 2019 operational and financial results.
Thank you Mike.
Slide six provides fourth quarter logistics in storage segment highlights.
Note that all comparisons being provided reflect the inclusion of the a and Dx business acquired by MPC as part of its combination with endeavor in October of 2018.
Total pipeline throughput averaged 5.1 million barrels per day relatively consistent with the fourth quarter of 2018.
Terminal throughput averaged 3.3 million barrels per day for the quarter, an increase of 4% versus the fourth quarter of 2018.
During the fourth quarter, the Whistler natural gas pipeline continued to progress.
Just two Bcf per day capacity project is now approximately 95% committed with minimum volume commitments.
The startup is expected in the second half of 2020 one.
The linked to Webster Permian crude oil project in which we have a 15% equity ownership of the joint venture continues as planned and 100% of the contractual capacity is also committed with NBC.
We continue to expect the pipeline system to be in service early 2021.
And we're still pursuing a final investment decision for our Permian to Gulf Coast NGL pipeline called Bangle.
We continue our commercial work on this opportunity and expect a final investment decision in the near term. This project is also projected for startup that in late 2021.
Lastly, the reversal Mpcs cap line pipeline, which MPLX operates progressed with the completion of the mainline purge in the fourth quarter and.
Project activities are progressing per plan.
Once reversed cap line will be capable of supplying discounted mid continent, and Canadian crude to St_james, Louisiana, which has a direct connection to Mpcs Garyville refinery.
We expect to cap line to begin light crude service in mid 2021, and heavy crude service in 2022.
Slide seven provides fourth quarter gathering and processing business segment highlights and again note that all comparisons being provided reflect the inclusion of Andy ex businesses acquired by MPC as part of its combination with endeavor in October of 2018.
Fourth quarter gathered and processed and fractionated volumes increased year over year, primarily driven by growth in the Marcellus Utica and Bakken regions.
Theres been a lot of discussion related to the volumes in our GNP business in the Marcellus Basin. As you know these volumes are very dependent on producer activity in the region, making it particularly difficult to forecast as producer plans continue to evolve and a real time basis.
For the full year of 2019, our volumes in the Marcellus and Utica continued to show significant growth with gathered volumes, increasing 18% processed volumes, increasing 14% and fractionated volumes, increasing 12% versus full year of 2018.
Despite the challenging macro environment for natural gas, we still expect continued growth in the northeast and some of our largest customers are significantly hedged through 2020 one.
In the fourth quarter, we placed into service our final two plants 12, and 13, along with the C. Fractionator at the Sherwood processing complex in the Marcellus.
In addition, the toronado processing plant was placed into service in the Permian.
These projects collectively added 600 million cubic feet per day of incremental processing capacity.
Now turning to our financial highlights on slide eight adjusted EBITDA was 1.3 billion for the fourth quarter of 2019 and full year. Adjusted EBITDA was approximately 5.1 billion with approximately two thirds generated by the logistics and storage segment.
For the year, we generated 4.1 billion of distributable cash flow supporting the return of capital of approximately 3 billion to our unit holders and the remainder supported our 2019 organic growth capital program.
Turning to the bridge on slide nine we show the change in adjusted EBITDA from the fourth quarter of 2018 to the fourth quarter of 2019.
The logistics and storage segment increased 44 million year over year in part driven by increased Terminalling throughput.
The gathering and processing segment increased to $29 million, primarily driven by strong growth in gathered processed in fractionated volumes from new assets placed into service over the past year, partially offset by lower commodity prices.
On slide 10, we provide a summary of key financial highlights and select balance sheet information.
We ended the year with a leverage ratio of 4.1 times and approximately 4.4 billion of liquidity, including three and a half billion on available on our bank revolver and approximately 900 million available on our intercompany facility was MPC.
As we look forward, we expect to continue to grow free cash flow by allocating capital investments to highest return projects with a long term strategic focus.
This disciplined capital investment approach should allow us to increase our financial flexibility and distribution coverage, while maintaining an investment grade credit profile.
Now, let me turn the call back over to Mike for some coolant concluding remarks.
Thanks, Dan in 2019, we executed operationally delivered strong financial results and continue the high grade our capital plan moving us closer to free cash flow after capital investments and distributions as we begin 2020, we're focused on executing our business plan and looking forward to the conclusion of the MPC midstream special.
Committee.
Now, let me turn the call back over to Jim.
Thanks, Mike as we open the call for questions. We ask that you limit yourself to one question plus a follow up we may reprompt for additional questions as time permits with that we will now open the call the questions.
Thank you we will now begin to question and answer session. If you have a question. Please press Star then one on your Touchtone phone if you wish to be removed from the Q. Please press Star then too. If you are you seeing a speaker phone you may need to pick up the handset first before pressing the numbers. Once again, if you have the quick.
Jim. Please press Star then one on your Touchtone style is our first question comes from Charlie Barber with JP Morgan Your line is open.
Hey, good morning, I just wanted to start on the 2020 backlog can you talk about the drivers to that reduction.
Trying to gauge what levels timing versus any projects being removed from the backlog looks like bangle nave Celeste.
Charlie This is Mike.
What I would tell you I'll give you a little bit of a long answer. So you know ROI see an investment discipline have always been a high priority for us at the same time, we've had the goal of getting the free cash flow, but we didn't want to pass on a couple we think are really good opportunities in weight to Webster Whistler et cetera, you know those projects are.
MVC back long term committed fee based projects. So as a result of that we just continue to put those in and as you mentioned bangle is still in our product in our program and I will talk about that in the second but but the bottom line is we continue to high grade the portfolio, particularly after the a and Dx merger so.
After going through that process and knowing that we wanted to have a higher ROI I see on our portfolio and a lower risk profile, we felt comfortable given an early indication at the last call and now a more from indication of where we're going to be in 2020 as well as some future outlook is to where we think we're going to be in 2020.
One the main driver here, though is we are looking to put ourselves in that excess free cash flow after distributions, which is about $3 billion. So we feel we return a significant amount of our 4 billion of cash flow you know to unit holders today, but after distribution that after capital, we still want to being a free cash.
Oh position as quickly as we can offer more flexibility for unit buybacks.
Or a or leverage reductions.
Hopefully that gives you a good feel for the overall thought process there.
Yeah. It does I guess on the free cash flow side. When you talk about leverage reductions in your repurchase can you talk about how you pride to prioritize those two and you look criteria you have in place to do that.
Well well the the most important thing is to getting that position, where we have that discussion. So currently we you know we're not quite there yet.
But when we get there we're going to look at the opportunities are both we'll see where the unit prices and evaluate it and we'll also look at where we stand from a debt standpoint. So the good news is we want to get there as quickly as we can in them and then we'll optimize what's the best the.
Option for us at that time.
Great. Thanks, Mike.
You're welcome.
Our next question will come from Shinier Gershuni with you BS Your line is open.
Good morning. This is I guess, we got good dialing in for sugar shiny just MPC board evaluating asset swaps between MPC and MPLX as a part of the review and is it why no EBITDA guidance was released today.
I didn't hear the second part of that question, but answering to the first so you know the committee is looking more at the overall structure of what we're doing as far as a MPLX et cetera.
Specifically towards you I think your question of of drops we do have couple assets at said at the MPC level that are candidates.
Great, Okay, South, Texas Gateway cap line that we've talked about in the past, but nothing has progressed on those and our position has been you know until they're generating cash you know the it's a little premature to have a conversation on that and then and that Didnt hear. Your second question is about EBITDA guidance is that why we're not giving EBITDA guidance today, but I.
It's really just around waiting for the US the process to play out with the committee and then I'll. Just also add we mentioned that you know the producers plans are changing on a real time basis and so some of our key producers have not.
Shared their results for the year in their outlook in their capital spending plan now for 2020, so probably around the time that we.
We hear from the Midstream committee and were able to share that update with with you will also be at a better positioned to have an idea of what the producers think their outlook will be for 2020 as well like I said that our largest producers are substantially hedged we do continue to expect some growth.
And particularly in the Marcellus.
But we'll.
Well, we would expect to provide a little better insight into 2020, when we conclude the process with the midstream Committee.
Perfect. Thank you for taking my question.
You're welcome.
Our next question comes from Spiro doing this with credit Suisse. Your line is open.
Hey, guys, it's John Mci on for Spiro, just a quick one going about a 2020 capex.
Do you feel at this point this is as low as you guys can go or if let's say the production outlook worsens could your numbers flex down a little bit more.
Yeah, I think it's a pretty good number John the the biggest challenge we have going on hitting it exactly is you know a calendar number as opposed to rolling project type numbers. So we're always trying to really estimate whereas is going to be at the end of December as it rolls into 21, but I think thats why we said, it's approximately 1.5 could be.
A little bit in and around that.
I don't anticipate that changed a whole lot at this point as we're obviously getting into the year and getting pretty firm.
There may be as the as the year progressed as a little bit of flex around it but I'm not expecting a lot.
Alright, Thanks, Mike and then just on being a free cash flow positive in 21, how do you guys think about that in the context of potentially F. IDN Bengal and spending maybe on the fracs as well.
And that also how you factor in that to the strategic review thanks.
Sure. So first on on Bangle, we are still pursuing an F.I.D. hopefully in the short term, we thought we might be thereby now we still feel very good that the industrial logic still holds up we're continuing the commercial work. So we're still feeling good about that and we told people continually that bangle is in our capital estimates.
So so that's the first part of your question.
Second part was.
Remind me again with the second part was the second part is just you know you've given this kind of formal guidance of being free cash flow positive. After distribution. Some 2021 is that it was there any chance that could change after the strategic review or is that you know something we can really.
Our focus on for now.
Yeah. That's a great question, John I mean, obviously anything that could change out of the strategic review will we'll be announcing later.
Right now, we're saying you know based on the plans that we have based on the business plan that we have today, we believe very comfortably that we can get ourselves into a good position of free cash flow by managing our capital et cetera anything that comes out of the committee or you know obviously, we'll have to deal with that once that's at a conclusion.
But for right now, we're giving is as much guidance as we can you know based on the capital that we've been trying to update since the a and Dx merger and like I said, we gave you a quick update after the last call and now we feel more from for 20 as well as trying to give you some outlook as to where we're we're driving the portfolio.
Great all right. Thank you.
You're welcome.
That's a reminder, if he would like to ask a question at this time you can press star one on your phone and record your name when prompted our next question comes from T.J. Schultz with RBC capital. Your line is open.
Hey, good morning, just on the the path to free cash flow and 2021 that at the lower Capex is it pretty clear driver, but what are.
Your assumptions on GMP volumes to get there I understand things are changing on a real time basis, but as the takeaway that.
Do you view producers as sufficiently hedge the next couple of years to to give you that comfort level on 2021 or.
Good to producers react differently than you expect now that that could kind of push out I'm getting to that free cash flow.
Yes, I'm going to give a little introduction I'll, let Greg Flunky, who runs our gathering and processing give some comments.
First of all I would tell you I I've always said everybody to look at these results year on year.
Because it's a stair step businesses plant startups to the sequential is hard to get a good feel for the business and as Pam reported we started up Sherwood 12, and 13 inch as she also reported several of the largest customers up in the northeast our hedge so they're not experiencing the the tough macro environment.
The number which we think is still pretty meaningful is you know year on year 2019 versus 2018, Marcellus Utica growth was up 18% in gathering 14% in processing and 12% in fractionation. So our view is expectation for it's a slow down as the producer customers move in there.
Financial models, but at the same time, we still anticipate some good growth up in that area. So we we're still very bullish on the area and I'll, let Greg give a couple of comments one on the specific operations that we got going there.
Yes fall on what this Greg flirt uniform was on large comments.
Yeah, we are we're still seeing gross in the northeast.
The northeast was a good story, because we're I think I mentioned last quarter were over 90% utilization, you'll see that temporarily drop down because we brought to two plants online.
And filled up the remainder of the Sherwood plant sites, we're now moving onto the adjoining smithburg sites.
And.
Planning on completing that plant, bringing online third quarter. So we do still see strong hedge positions.
But if you looked at our capacity we're at a point now we're we're just incrementally trying to fill in you know of jobs to capacity that we have left by customer and plant and I think the takeaway residue lines are in a similar situations, which in a really good spot. We're continue to grow in west, Texas or we turned up our tornado plan earlier this year and now we've got our Preakness.
Plant plan for.
For later this year, so we continue to grow.
Volumes and.
Gradually fill those plants and western Oklahoma as well.
Some areas or continue to decline because the you know the rigs continue to focus more in a in certain areas spoke to.
Yeah, I think we're still supportive of gross and to the degree were also turning up or hope bill or fit so bill plant later in the or to account for.
The corresponding liquid growth.
Okay does that 2021 Capex included another Permian plant.
And we hope to continue to grow up.
Another you know where as we continue to bring volume on we're hopeful we'll continue to see grocer, but we're not giving I don't think we didn't yard and showed on the.
On our capital plan for 21.
Yes, we do we do highlight there will be additional Permian processing, but we haven't given dates on that.
We highlight some of that on slide five for 1920 and 21, we show what we expect a <unk> will be coming on for Ellen SNG and piece of the if you take a look at that that might be helpful. And then any appendix. We also lift there is no specific projects and when they are expected to come online, but as we've said before we expect down in the near term will have a bcf a processing capacity.
In the Permian.
That will yield 125000 barrels a day of liquids that both split would be directed toward.
Our integrated models that were building from the Permian to the Gulf Coast. So the gas dry gas would be feeding whistler and the liquids coming off into the plant split DAF would be feeding the Banco project.
Okay understood. Thanks.
You're welcome.
Our next question comes from there's a lot for done with Bank of America. Your line is open.
Hi, Good morning, everyone. This is Jason brand is on for it as well.
Good morning Tonight.
My question is just to dig a little bit deeper on the 20 capex.
I know you mentioned that the ROI she was the.
A key driver there but.
Can you sort of discuss it there was a combination of GMP or additionally of the LNS assets that might have gotten high graded out there it looks like the ratio.
Of stand is consistent from last quarter step down.
Yes, Oh, good portion of the a reduction from the original plan. We're in the GMP area, but there was also some LNS projects as well data that.
We didn't believe met the ROI see hurdle that we would like for those so I I. The best way to think of it is we're trying to our high grade ROI see also try and put ourselves in the best risk profile and like I said earlier is part of a you know the way we look at some of these other projects like linked to Webster and Whistler et cetera that.
I have nvcs no long term MDC projects, obviously give us.
A different risk profile than some of the other types of contracts that end up in the gathering and processing area. So it's a continuum.
We felt that we needed to give you some indication and last quarter after the a mdx.
Combination. So we gave you an initial indication and at this point, we feel much firmer for 2020, and then the outlook to 2021 as I mentioned, that's been a goal of ours for for some time would have gotten there sooner except for we still believe that if you can deploy capital with some very high returns like in week to Webster or what.
Whistler et cetera, you know, we're not going to pass on those opportunities because we think that creates a lot of value for unit holders, but.
But with that in mind, you know we've been trying to drive the high grading to a point, where we think we'll be in a a free cash flow position after capital and after a distributions and I try and remind everybody that you know our return of capital is a pretty significant number $3 billion out a 4 billion of operating cash flow.
Okay, great. Thanks for the clarity there very helpful. And then my last question is on 2021 you.
I've spoken about a little bit, but can you dive into few of the other variables.
In terms of how we should think about.
Distribution growth and leverage out into.
2021 to hit that free cash flow growth target.
Yeah. This is Tim and I'll, just reiterate what I said earlier in terms of guidance, we think we'll be in a better position and don't want to get.
My question I'm, sorry, it's Pam.
And I mentioned earlier that we'll be in a much better position to provide some guidance for for the outlook on once we get on the other side of the Midstream Committee review process.
But with respect to managing getting to free cash flow and managing.
Our leverage.
We've said that we're comfortable around four times, we at times will tick up above below four times and that we would be expecting it not to get.
Meaningfully above where it is what we reported for the ended the year for 4.1, but when we get to free cash flow well. The idea is to have a lot of flexibility from a financial point of view to allow us to make what we think can be the right decision at the time, whether to increase returns T to unit holders.
Or whether too.
Reduce debt or use buybacks as a as a different form a return of capital, which seems to be a growing interest from our unit holders. So as Mike said, we returned a lot of capital today in the form of distributions.
We'll continue to evaluate as we get to free cash flow what the what the right mixes in terms of the capital return and always managing our leverage to an investment grade credit profile.
Okay. That's all for me. Thank you. Thank you and we'll look forward to the Clearview update.
You're welcome.
Thank you and our last question comes from <expletive> from Battery with Jefferies. Your line is open.
Hi, Good morning, everyone I Wonder a small clarification I apologize if I missed it.
Yeah, well accretion if I'd on bangle, yet, but I was wondering if it was part of your equity and equity capital outlook of $2 billion prior to this reduction in capital.
And is it part of putting 21 capital plan and if so.
I was wondering what kind of financing assumptions that a bit embedded into that that outlook for for the pipeline. Thank you.
Yeah, Vikram I did mentioned net earlier bangle is still part of our plans and we still are pursuing f. I'd on that project. Then it is in our capital plans at this point, we haven't specifically given.
Guidance on the individual project itself other than it is part of the 1.5 in 20 in the 1.0 in 21.
That's all it ticket.
You're welcome.
Thank you I'll now turn the call back to Mr., Jim now, let me see for closing remarks.
Thank you for joining us today and thank you for your interest in MPLX should you have additional questions or like clarification on any of the topics discussed. This morning members of our team will be available to take your calls.
Thank you [laughter] that does conclude today's conference. Thank you for participating you may disconnect at this time.