Q1 2020 Earnings Call
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Welcome and thank you for standing by today's conference will begin in approximately one minute. We appreciate your patience again today's conference will begin in approximately one minute. Please continue to standby.
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Welcome to the MPLX first quarter Twentytwenty earnings call. My name is Sheila and I will be your operator for today's call. At this time all participants are you not listen only mode. Later, we will conduct a question and answer session Press Star one on your Touchtone phone to enter the Q.
Please note that this conference is being recorded I will now turn the call over to Kristina Kazarian Kristina you may begin.
Good morning, and welcome to the MPLX first quarter 2020 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, or Mike Hennigan, President and CEO and deal CFO and other members of.
The management team, we invite you to read the Safe Harbor statements and 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.
Our included there as well as our filings with the FCC.
Now I'll turn the call over to Mike Hennigan for opening remarks.
Thanks, Kristina good morning, Thank you for joining our call.
Mystore Butcher with you some of the steps we've taken in response to the current Cobot 19 crisis, which has affected all of US and has impacted the demand for Roger carbons for which we provide services.
The better protect a health and safety of everyone. In mid March we asked many employees the store working from home so that those employees, who must be on site to run our operations could have the space they need to properly social distance and implement other protective measures.
I appreciate the professionalism and flexibility with withdraw our employees of approach has changed how we work and especially want to thank those employees, who continue to run our business every day. Thank you for the commitment you've shown the work company and those who rely on the central products and services, we provide by continuing to ensure this important work is done safely.
And with excellence.
Second we are grateful for everyone working on the front lines of this pandemic this quarter to support the efforts of our healthcare workers across the country or sponsor MPC donated 575095 masks to 46 different hospitals across the country. We will share some of MPLX is local support.
For his later in the call.
As we progress through the quarter, we work to adapt as very dynamic situation created by Kobin 19, pandemic, an oil price pensions.
MPLX had a relatively strong quarter as the impact of demand destruction began to impact of business in late March.
Earlier today, we reported adjusted EBITDA for the first quarter of 2020 of $1.3 billion, which is consistent with the prior year first quarter.
In this environment, we're taking proactive steps to reduce our 2020 capital target by over $700 million.
Forecasted annual operating expenses by approximately $200 million.
You may recall that the process of high grading our capital portfolio has been underway since the combination with a mdx last year.
In the combination closed our initial 2020 growth plan was $2.6 billion.
On our third quarter 2019 earnings call, we announced the reduced target to approximately $2 billion.
Last quarter, we announced that we had identified additional opportunities to further streamline our growth capital expenditures focusing on the most attractive returns, reducing our growth targets a $1.5 billion.
Today, we announced that we are reducing our 2020 growth capital spending by over $600 million to approximately $900 million.
Our 2020 gross capital spend target is now primarily related to projects that are already underway, including the linked to Webster crude oil pipeline, the Whistler natural gas pipeline and the Mount Airey terminal expansion.
Additionally, the original Bangle project scope is no longer being pursued instead, we're pursing, we're working with others to optimize existing pipeline capacity, while continuing to meet producers' needs for flow assurance and future growth.
Also the associated fractionation capacity and export facility have been deferred.
We also announced that we are reducing our 2020 net maintenance capital target by about $100 million to approximately $150 million.
Looking forward, we are maintaining our goal to achieve positive free cash flow net of both capital investments and distributions in 2021 and highlight that plan on slides for this.
This inflection is expected to be achieved through a combination of continued annual earnings growth and the high grading of our growth capital plan.
As a result, we believe that we will be positioned to broaden our value creation options and enhance our long term financial flexibility.
Turning to slide five given the current business environment, we've been getting many questions on the security and stability of our cash flows in both of our business segments.
Our logistics and storage segment made up approximately two thirds of our 2019 EBITDA.
The largest part of our own as business with MPC has refining logistics and fuels distribution or RL ft, which had a combined EBITDA of approximately $1.4 billion.
This combined rls the business has a combination of fee for capacity and highly stable service fees with minimum volume commitments.
Similar to our LSD, our terminals and marine businesses are primarily fee for capacity and highly stable service fees with minimum volume commitments.
The remainder of Varonis business with MPC includes crude and refined product pipelines and certain equity method investments.
Our crude and refined product pipelines are backed by substantial nvcs and MPC represents approximately 84% of our 2019 volumes.
Turning to slide six we provide a closer look at the characteristics are gathering and processing or GMP segments.
GNP represents the remaining one third of MPLX is 2019 EBITDA.
The Marcellus is our largest region within GMP approximately 74% of the processing capacity in the Marcellus is backed by Nvcs.
Processing capacity in our Utica and southern Appalachian regions is backed by 27% and 24% Nvcs respectively.
Percentage of southwest and mid Con region processing capabilities backed by Nvcs varies.
Our key producer customers have significant hedging programs in place in 2020 and 2021.
In addition last week, our largest public customers announced that they are 2020 production plans are being maintained as well as additional measures to improve their balance sheets and liquidity in the current environment.
A silver lining to the expected decline in Permian crude and associated gas production is supported provides to the price of natural gas, especially for the northeast on purpose gas producers.
The natural gas strip is also providing an opportunity for producers to further hedge their production into the future.
Turning to slide seven MPLX has always been a responsible corporate leader I wanted to take a moment to comment on how this will remain an ongoing focus and highlight some significant recent achievements.
In 2019, we earned EPA Energy Star Challenge Award at several of our terminals. We also now have 32 sites that have been recognized under osha's voluntary protection program or VPP.
He recognizes employers and workers, who have implemented effective safety and health management systems and maintain injury and illness rates below National Bureau of labor statistic averages for their respective industries.
As I mentioned earlier, the covert 19 pandemic has created unprecedented challenges in the personal and professional lines of many.
It also has created an opportunity for us to help our communities in unique ways.
In El Paso, Texas, our transport fleet transported in emergency mobile clinic to the El Paso Airport provide medical really for the area.
What's on pipeline also their native Nielsen first responders and staff at local nursing homes throughout its operating regions.
Again, we are grateful for everyone working on the front lines of this pandemic on our proud to do our part by contributing supplies to organizations that are supporting those in crisis.
Now, let me turn the call over to Pansend discuss our first quarter 2020 operational and financial results.
Yes, Mike I'm pleased to report that MPLX delivered strong results for the first quarter with adjusted EBITDA of $1.3 billion and distributable cash flow of $1 billion, which provided continued strong distribution coverage of 1.44 times and leverage of 4.1 times.
As Mike mentioned previously, we announced proactive steps to reduce our capital spend in forecasted operating expenses to offset the expected impact of lower volumes to our assets caused by the cobot 19 business environment.
Slide nine provides first quarter logistics and storage business segment highlights.
Total pipeline throughput averaged 5.1 million barrels per day, an increase of approximately 2% versus the first quarter 2019.
Terminal throughput averaged 3 million barrels per day for the quarter, a decrease of 8% versus the first quarter of 2019. This decrease was primarily attributable to planned and unplanned downtime at some of them Pcs refineries.
During the first quarter the week to Webster Permian crude oil pipeline project in which we have a 15% equity ownership interest of the joint venture continues to progress.
We continue to expect that the pipeline systems of which 100% of the contractual capacity is committed with Nvcs will be placed in service in the first half of 2021.
The Whistler natural gas pipeline project also continued to progress.
The two Bcf per day capacity project, which is where the 90% committed with NBC is expected to start up in the second half of 2021.
Slide 10 provides first quarter gathering and processing business segment highlights.
Gathered volumes averaged 5.8 billion cubic feet per day, representing a 3% decrease versus the first quarter of 2019.
This decrease was primarily driven by unplanned downtime related to a producer customer in our Utica dry gas region.
Marcellus and Utica gathered volumes averaged 3.2 billion cubic feet per day, a 5% increase versus the same period last year.
Quarterly processed volumes increased 3% versus the same quarter last year to 8.8 billion cubic feet per day, primarily driven by volume growth and our Sherwood complex, which had two new plants placed in service in the fourth quarter of 2019.
Marcellus and Utica process volumes averaged 6.2 billion cubic feet per day, a 3% increase over the first quarter of 2019.
Fractionated volumes averaged 553000 barrels per day, representing an 8% increase over the first quarter of 2019, primarily driven by the Sherwood fractionator that came online in the fourth quarter last year.
Marcellus and Utica fractionated volumes increased 6% over the first quarter 2019 to an average of 490000 barrels per day.
Turning to our financial highlights on Slide 11, adjusted EBITDA was 1.3 billion for the first quarter of 2020.
Logistics in storage segment, adjusted EBITDA was 872 million, while the GE the gathering and processing segment contributed 422 million in adjusted EBITDA.
For the quarter, we generated approximately $1.1 billion of distributable cash flow and will return for the quarter approximately 760 million to our MPLX unitholders.
This provides distribution coverage of 1.44 times and resulted in 319 million of retained DCF.
The bridge on slide 12.
The change in adjusted EBITDA from the first quarter of 2019 to the first quarter of 2020.
The logistics in storage segment increased 44 million year over year.
Clearly driven by increased pipeline volumes as well as growth in the marine business.
The gathering and processing segment decreased 13 million, primarily driven by lower weighted average NGL prices, partially offset by growth in process and fractionated volumes from new assets placed into service over the past year.
Slide 13 provides a summary of key financial highlights and select balance sheet information.
We ended the quarter with a leverage ratio 4.1 times and approximately $2.8 billion available on a revolving bank facility.
And $1.5 billion available on the intercompany loan facility with MPC.
As we look forward, we expect to continue to grow free cash flow by allocating capital investments to the 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 Christina.
Thanks, Pam 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 to questions operator.
Thank you we will now begin the question and answer session. If you have a question.
Starting went 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 handsets first before pressing the numbers. Once again if you have to question. Please press Star then one on your Touchtone phone.
Our first question will come from Shinier Kuni with.
You May go ahead.
Hi, Good morning, everyone, Mike first off congratulations on your new role on luxury you may want make in this environment, but nonetheless congratulations.
There.
Moving to install the offline I was wondering if we can talk about the RMS segment.
Callable in a broad basis and I do appreciate the color around the Mbcs that were put in presentation today on slide slide.
But I want to consult and think about things it's hard to look at one cute performances from Telefnica had given the environment.
That's why we reported that refined product volumes fall significantly during the last two mines and we have seen some.
Green shoots week over week improve so yes evidence lopsided trying to conform side.
I was wondering if you can talk about how much of the Q1 EBITDA in that segment is repeatable in Q2.
Or said differently is protected by Mbcs with both MPC and symbol third party.
For the owners.
As snares. Good question. So one of the things that we tried to do is give a little bit more color on the nbcs in general since everybody has been asking around that question.
Let me give you the high level macro view on the LNS and then Pam can get even a little bit more color on on the numbers. So first off at a high level I mean, everybody's aware that demand for gasoline and.
Diesel and jet fuels had a dramatic changes resulted in a pandemic. We normally have said gasoline kind of hit a floor of of around 50% reduction overall.
That's kind of puts it in it and in general average positioning little bit more on the west coast, a little bit less in the Gulf of call. It overall about 50%.
We're cautiously optimistic that we're seeing a little bit of recovery, maybe 5% to 15% depending on the area.
But we still have a long way to go so.
We have cautious optimism that recovery is starting to occur at the same time, we still have 30 million barrels of light product inventory over the five year average and 50 million barrels of crude over the.
The five year average so there's still a long ways to go.
PC is guiding at minimum rates continuing in the second quarter, though the MPC system has basically cut back to about.
Two thirds of its capacity so that has an impact on on the onus business, which is what you're asking so let me, let Pam give you a couple more numbers that although add to our prepared remarks that will give you a little bit more insight into that would that cost would look like in the quarter, Yeah, hi share.
As Mike said.
We have trying to take a stab at looking at what would be the EBITDA impact. If we were at minimum volume commitments for the full quarter to give you a sense for what that might be now. We also tried to highlight in the slides that not all the services that are provided due to MPC arm subject to volume.
Some risk and Mbcs a lot of them do have fee for capacity and are not subject to that volume swing, but we take a stab at that and we think it'd be about a $150 million hit to EBITDA for the quarter. If we were at minimum volume commitments for the entire quarter.
The other thing I just want to highlight you have other sensitivities. We won sensitivity that we provided in the past consistently as the NGL price sensitivity and that remains at about for every five cent change in the NGL price basket.
It's about 23 million a year.
And so if you think about our first quarter. The average that we experienced was about 40 cents a gallon.
And right now were about 30 cents a gallon. So is that if we held flat here in the second quarter for the full second quarter that Tencent change for the quarter would probably be somewhere around $11 million to $12 million for the quarter.
Well.
One other thing I, just wanted to highlight and while we're talking about sensitivity share is them.
Is that curtailments, we've had questions.
About that from a number of investors. So just based on the curtailments that we see at the moment.
We think that could be as much as 40 to 50 million in the quarter. So just trying to put we're not giving guidance for the year, we're not giving official guidance for the second quarter, but those are some sensitivities that that you could use if you want to make assumptions about if these.
If these conditions remain for the full quarter or for only part of the quarter. We thought it might be helpful to give you those that data.
Well that was super helpful and really do appreciate the transparency there.
New year's Eve follow up question.
You announced pretty steep capex reductions for 2020 or soon to them and we were thinking.
All in you also had some comments about how you expect to be free cash flow positive.
After distribution in 2021, but you didnt see that about 2020.
Should we use to assume that you're probably the free cash flow neutral or close to that this year is there any color around how you should be thinking about that for 2020.
Yes, there's Mike so it'll be obviously pretty close to your point is on paper could be.
A little bit one way or the other we had originally said that we thought we could get thereby 2021 and that was predicated on the higher capital number so.
Your points well taken with the lower capital number we're just going to have to see how the rest of the year plays out obviously as we mentioned in his prepared remarks the situation on natural gas has improved.
Considerably as a result of the shut in of associated gas in the Permian et cetera. So.
One of the major changes in the capital program and want to be really clear about this is the original bangle projects. We are no longer pursuing just reminding everybody that we hit F. Aidid Whistler and we had if I did want to Webster, but we had not if aidid, the bangle project, but but I don't want people to take.
Away from that that were not committed to still servicing our producers with flow assurance. We've just change the view of that to use some existing pipe that we're working with some other parties. So the original scope is now what we are not pursuing which changes. The you know the capital quite considerably I know the mark.
It has been wondering about that for a couple of quarters in a row and we've we've said many times that we want to make sure. We have a solution for producers at the same time do you know there's still a lot of interest in going to.
An area that is outside of Bellevue, So that that's still holds.
The situation is such that the volume expectation is such that the capital requirement for the project needed to change and Thats and that's where we're headed right at this point.
So overall, we're still committed to NGL.
Solution. However, the original scope is what we're deferring or putting to decide at this point and we have a new scope. That's included in our in our.
Guidance here on the capital reduction so you can see a pretty significant reduction as a result of that hopefully that'll make sense to.
That does really appreciate the color and instances.
Youre welcome. Thank you.
Thank you next we'll hear from Jeremy Tonet with JP Morgan you May go ahead.
Hey, Good morning. This is trying on for Jeremy just following up on so in the last comments there I understand that you're still targeting free cash flow generation in 21, just curious if the recent down cycle has kind of impacted your view on on what the right level right level of Leverages as it relates to in the four times that yet.
You talked about in the past and then kind of following on that as you look at capital allocation next year, how at that might influence how you view leverage versus buybacks.
Yes, So let me just to highlight one additional spot that I should have shared win last year asked a question about.
The potential impact to EBITDA. So obviously.
The ability to get to free cash flow positive starts with with EBITDA.
In the strength of that and so as we mentioned today as Mike mentioned, we also have.
Found at $200 million of of operating expense reductions, so thats going to help offset.
A significant portion of what we think is going to be the impact to EBITDA here in the second quarter of lower volumes across the system. So just wanted to get that out there too.
As we talk about.
Free cash flow, that's going to be an important element of our strategy to offset that volume impact, but then when we think about free cash flow you. There just a few.
Levers that we have and certainly managing capital is one of them.
And maintaining an investment grade credit profile and maintaining our distribution to our sponsor are important.
So when we think about leverage we're very comfortable where we are.
4.1 times, and we would feel comfortable seeing leverageable up to a higher level recognizing that it would not be there permanently we'd be bringing it back down.
Over the longer term.
We feel comfortable with leverage I think everyone in the space has been moving their leverage down not up and so three and a half time as the four times is an area that we will feel comfortable operating in the future and then when when we get to that place, where we have excess cash flow, which will be nice luxury to.
I have I will determine if we'll use that for additional debt reduction or if we'll return to shareholders in the form of them unit buybacks, so getting a little less leverage in the whole the financial system, we will give us that flexibility determine how to best create value for the in holders.
Great. Thanks for that just the second question on on your Capex program.
I know you kinda talk through 2020, just curious on any thoughts high level on 2021, I think that number 1 billion that youve put in.
Last quarter's slide deck, just curious if theres.
And any thoughts there on potential deferrals.
Yeah, we haven't given a lot of color yet on where 2021 will play out as we have see how this pandemic continues to.
Play itself out like I said earlier I think we have cautious optimism that we're starting to recover.
But as I mentioned, there's still a long way to go here. So so for right now we're just concentrating on the 2020 plan and then as the year progresses, and we get to see how this plays out more.
We will give a little bit more disclosure on where 2021 will be.
Okay, great. Thank you.
You're welcome.
Our next question will come from Spiro Dounis with credit Suisse. Your line is open.
Hi, good morning, everyone.
In the northeast if we could.
Let's look at you tables in northeast processing expansions at the same time.
It seems like northeast actually have a tangible growth potential again. Thanks, how are you thinking about northeast capital allocation going forward have you made the decision a diversified within the basin or could we see pivot back at some point.
As for I think the situation on gas is obviously changing quite a bit with the the current.
Reduction in associated gas.
We stated on many calls previously that our view was it the northeast was still a stable amount of cash flow for us than we expected the producer community to be stable even in the previous environment. So so obviously that hasn't changed and if anything it looks like it's stronger opportunity for the northeast to maintain or slightly.
Grow and that's that's kind of been our physician all along.
He has been some concern about the absolute level of of natural gas price and what that does to the to the producing community.
But as everybody can see you know the 2021 strip is now north of 275, or so and you know even in the current situation we're above $2 in in the near term so but I think the situation has changed quite a bit as far as a dynamic going absolute gas price hasn't changed our view is.
So what we think is occurring there and you've heard a lot of disclosure from the producer community up there, but so I think we stated all along we thought the northeast will be a good source of cash flow for us. We thought it was going to be maintained we have never been a believer there was going to be a large reduction in the volumes up there even prior to the.
This situation, but obviously now that this situation is played itself out a little bit more there is more security in gas price and gas volumes for the northeast.
Understood that makes sense.
Listen and soon to the Permian asked a little bit I guess, it's just update us on the broader strategy. There I know one point the goal was to build out that thats Super system, and and look everything sort of change that just curious maybe where that stands at high augmented that strategy.
And then that contacts and just thinking around bang on a related fracs.
We're still moving forward with the Frac site at equation, just curious do you walk us through that the commercial interest that was really driving.
Those two two projects to stay to some degree on the board is just clarifying bangle.
On the new plan there to provide to flow assurance.
Offload, obviously someone else's NGL pipes.
We actually talking about partnering on an existing NGL pipeline.
Yes, so on the first part of the question you know, we're still committed to the Permian growth, it's going to occur off, albeit now slower. So one of the things that we've been trying to do in that business as you've heard is.
Have disciplined around the investment and where we are putting our capital and the Permian still in our view is still a good long term area. Obviously in the short term with crude price in the low twentys.
The expectation for producers to to adapt to that is not unexpected.
We.
Hesitated as you know for several quarters, we've talked about because the capital commitment or for the original scope was a much larger commitment and we wanted to have a surety of the volumes while the current situation. Obviously is change that so we're still committed to the area, but we are working with existing assets.
That are out there and we are still committed to an NGL solution. It just won't be the original scope that we had envisioned early on so I can't give you a whole lot more color there as you.
Tim and his team is working on the the commercial situation as far as putting our NGL solution together, but I do believe like I've said, all along the industrial logic for the projects still holds.
Now the pace of volume is such that it will be a little slower as producers adapt to the current environment, which we certainly understand and I would tell you that I think this is part of what we've had in our mind all along as we wanted to not commit to that full scope until we were really sure that the volume.
Commitments would be there with what's happening in the market, obviously and we understand it is the volume commitments are slower and therefore, the capital requirements needed to adjust and Thats and that's kind of what we've done with the projects. So still believe in the industrial logic still believe in the projects overall goal.
We still believe in producer of outlets for Ngls that all still holds just the scope of how we attack it is what's changing.
Understood I forgot unlike.
You're welcome.
Our next question will come from Michael Blum with Wells Fargo. Your line is open.
Thanks, Good morning, everyone.
I was wondering if you could discuss.
The write down you took this quarter and a little more detail.
Especially since it seems like especially for your commentary that Josh fundamentals are are actually improving but it seems like most of the write down came in the gas related segments I Wonder if you're just talk a little more about what drove the impairment.
Yes, it's really we had a triggering event, which caused us to look at.
Longer term forecasts and and I'll just note that in the Marcellus primarily the the write down was goodwill was not an impairment of the assets themselves.
And I think Thats, an important thing to it to recognize and so its just.
With a rapid change in our stock price the rapid change in the.
NGL prices.
The commodity prices and the.
Concern over the outlook for demand is what caused it.
And examination of.
The value that we had the goodwill on the balance sheet as as well as in limit more limited cases that the assets themselves.
Okay.
And then I.
I guess my second question is.
200 million of operating expense reduction is that we're not going to come from I guess immutable will detail in that.
It all out of the logistics and storage segment of the business and it really we capitalized projects and we expense some projects and I'll just say that was one of the things that was different between a.
Hey, Mdx and MPLX certain things that they would have capitalized we expense. So we have certainly a large population of opportunity to spend money on projects that are expensed as opposed to capitalize and so.
There was a healthy opportunity there for us to reduce the spending and so that's what that's what that relates to large number of small projects is the way to describe it.
All all of it was on the logistics in storage side of the business.
Got it thank you very much.
Next we'll hear from Christine Cho with Barclays.
Good.
Thank you.
I'm not sure if it's too early to thinking about that.
But does that pandemic change how you guys are thinking about the NBC on the legacy products and crude pipes that expire in the 2022 timeframe.
What I understand so its nbcs are put into play at IPO and now we're probably more necessary at that time to provide a stable income for the MLP.
MPLX is with a lot smaller back then whereas now it's.
A lot bigger more diversified should we think that theres always going to be some level of and the ease or is it an option that you can roll off because what we're going through with a 100 caravan.
Yes, we would expect the contracts to be there is an automatic extension provision in the majority of those contracts. So we would expect those to just extend in the ordinary course the way they are structured today.
Okay, and the automatic renewals on on annual basis.
No five year extensions for the pipeline.
And then I appreciate your commentary on the North East.
But can you.
Expands on what sort of conversations you're having with the producers in the north East and how should we think about your exposure given it is a bit more wet gas. Okay, then while gas prices.
We're seeing a boost the NGL realizations are still a little bit of a question Mark.
Yeah. Christine this is Mike So I'll comment first off obviously, where crude price and NGL prices.
The wet gas is under a little more pressure than is normal you know the unknown question is how quickly does crude price returned to a normal plays and then how much does the NGL price changes the result of.
The U.S. refining system running at minimum so our expectation is protein propane prices will be coming.
Up as you know the situation evolves I don't know that any of US no really at this point how long the demand recovery will be as a result of the the pandemic shelter in place and reopening of the economies are going to play itself out. So I think thats an unknown, obviously the boost of natural.
All gas pricing is helping that and at least in our view in general over a longer term, we still believe overall that that wet gas economics are better than dry gas economics for the long term you get that extra boost obviously to your point in the very short term crude prices.
As we've gotten pretty low propane prices have gotten pretty low Pam has commented on what that sensitivity is for us, but assuming cautious optimism to get the economy going back in the right direction, assuming all the health situation works out fine for everybody and a recovery in the economy in a recovery in GDP, we should see.
The recovery in.
NGL prices as well so.
If anything in Oh.
Kind of in a weird way the the pandemic is actually more bullish for the gas slash.
NGL recovery.
Coming out of it once we once we can see to the point that we actually get out of it I just think the real unknown is how long does that take and how long do refineries run at minimum we've stated for for MPC, you know that we went to minimum.
In the back half of margin into April and we've given guidance at MPC for the second quarter that they basically says we still expect the U.S. refining system. The run a minimum for quite some time to draw down the inventories that were built as a loss in demand then and while that continues to occur there is less butanes, there's less pro.
Pains et cetera, being being produced so I guess, what I'll have to watch to see how long. It. It plays itself out, but I think directionally. It's good for the gas business in general.
Yeah, Kristine I'll, just add that everybody talks about associated gas and how thats a.
Helpful for the northeast on purpose gas producers, but you know as as associated gas comes down sodas associated Ngls.
And probably less has been written about that but there is an expectation that there they'll just be lower.
Ngls as a result of lower associated gas coming out of the southwest in particular.
So that that could set itself up well for.
Benefit for NGL going forward, even though we're not seeing the price today.
Appreciate that thank you.
You're welcome.
Our next question will come from Schwab paradigm with Bank of America. Your line is open.
Good morning, everyone. Thanks for taking my question just wanted to follow up on the.
You are positive free cash flow targeting 2021 does that assume flat distributions from here on and if we would recover yes at an estimated engine levels.
Assuming full recovery.
Slide production and they're really trying to get at what's your confidence level and meeting that target with the with the variables here.
Yes, so it's a great question. So obviously, our distribution philosophy as a board decision and it's something that we debated very heavily this this time because.
A lot of our.
Competitors have taken advantage if you want to call that's a lower that distribution.
We as a board talk about it and we felt the right thing for us to do was to keep the distribution, but hold off on the growth and leave it in a flat mode. So thats what we.
Decided to do this time.
Very much like Christine's question. We're this is going to be a real interesting year to see how it plays itself out we don't have a crystal ball, nor does anybody else to know how the pandemic will play itself out whether there will be extended time here. Obviously, the most important thing is the health and safety of everybody who's in.
While than this and as a result, the economy is having a reaction to that so it's kind of like the question. It was asked earlier you know we don't have a strong conviction around that 2021 capital number right. At this point, just because we think theres possibilities for it to change depending on how this plays itself out.
So, but as a general rule as we looked at the business, assuming full payout of distribution and assuming getting our capital to the level that we wanted to be that's why we stated we thought that wouldn't be achieved in 2021 as you heard from snares comment depending on how this plays itself out.
And we'll recover you have and how the gas production occurs.
We could be close to it in 2020.
We will see so all those dynamics come into play.
I'll just leave you with our view has been that it's a goal to get there there's a couple.
Levers that can be polled and right now our position has been we wanted to get our capital down to a level that we think.
Develops very strong return projects, so high grading the capital portfolio has been our focus.
And having a distribution remain flat to where it was before we thought it was the right answer for now yes. It was while I just like to add that.
As we've looked at the market for some time now there really hasn't been a reward for growing distributions and onetime there was a very high correlation between distribution growth and yield.
And that relationship is fundamentally broken and a lot of people are choosing to value the midstream in a different way.
EBITDA instead of yield oriented measurements, but also just point out that in terms of our payout ratio I would say that were at the high end. So 2019, we're about 74% of our operating cash flow paid out in the form of distribution. So if you look across the space, where there's MLP or C Corps.
We're right there at the high end. So we don't think that investors in this environment, our rewarding or really are looking for.
Distribution growth there really more interested in midstream companies that have that fortress balance sheet that have the ability to sustain their distributions over a long period of time.
Got it thanks or that.
The one the one last thing I would add and we've said this many times.
Investor feedback is very diverse in this area. There are a lot of investors who feel strongly about maintaining the current distribution levels. There are also many who feel it's an opportune time to reduce it.
You know as Pam stated we are at the high end, we believe it's the right thing for us to be doing at this point, but it's an area that gets discussed with the board a.
Constantly throughout throughout the year.
Got it thanks for that Mike and maybe a quick follow up to your comments earlier on the.
Competition, but we have seen between associated gas versus dry gas in the northeast and how.
It could benefit in the current environment.
Especially also your comments about the NGL pricing from here on.
What would you expect to be the driver from share to see potential uptick in production growth in the northeast and increase in GMP volumes here system in the northeast in 2020 2021.
Yes, again, I think a lot of it depends on how the demand side of this pandemic plays itself out across the whole economy.
Obviously, the the situation that prior to it occurring was.
People questioning whether the northeast was going to continue to maintain or grow. Our view was it was going to at least maintain and grow a little bit. Obviously, that's bolstered now, but I think you know the unknown that still out there and we don't have this crystal ball either is.
How does the U.S. economy respond to this when does it recover.
Back to I'll say normal levels and and have the demand side of the equation right. Now is the thing that I think is still the most on known.
Our focus always is no worry about the things we can control be conscious of the things that we don't control and but at the same time realized that we don't control some of those so so part of it is for us to be thoughtful in watches the demand side of this plays itself out and let me just add that another consideration is.
That the the producers themselves.
I have been and remain under a lot of pressure themselves to generate free cash flow and be a return of capital to investors and that's been a big focus for the northeast producers on those and among the largest center our customers and so I think they're going to continue to live within their cash flow means and maintain or.
Grow their production within their ability to do that so thats. Another factor certainly that gets supported with those higher natural gas and NGL prices.
Gives them the a more financial flexibility, but they're also very mindful of their maturities that come up in their financial position as well so they're they're taking.
Proactive steps to make sure that they have strong balance sheets.
But that's just another consideration to keep in mind as you think about potential growth as we go into the future.
Got it thanks, Mike and Pam.
Youre welcome.
Last question will come from Tristan Richardson with Suntrust. Your line is open.
Good morning, guys appreciate all the commentary, particularly around the sensitivity analysis.
Just a clarifying question there.
And the the dollar impact you talked about.
I want to us is that across all of the sub segments of illness, assuming MPC were to float minimums or is that just the pipeline sub sub segment, where there is the most.
While you metric exposure.
Well that is where we had the most biometric exposure, but we have feathered in the other pieces, where we think there is some volume exposure as well wherever we have mdcs. That's what we tried to focus on.
Very helpful. Thank you and then just one follow up the to another.
Hi, Mike I, just want to I just wanted to add is.
What would Pam and a team of tried to do is we generically lump the term MVC across the business and she's given some color on those numbers, but as you can imagine every individual asset our pipeline is a lot different.
It's a whole scorecard of variations of and then you go into Marine and then you go into terminals as well as pipeline. So.
We're trying our best to give you know as much color as we can and Pam and a team of kind of accumulated that all up and rolled that into one number that.
Hopefully, we'll give you the banks of the river is you know as the refining systems at minimum here's what to expect as NGL prices move we've given that guidance here is what to expect we've also given some sensitivity around gas shut in et cetera. So hopefully that answers. The question that I know a lot of people have been wondering and we're trying to.
As much color on it as we can.
No I really appreciate the.
Complexity involved there and then I guess just the last fall just around Enron structure I think the LP is disclosed in the in the past.
Sponsored can reduce or adjust nbcs in certain conditions and the I guess just in this current environment thinking of any of those conditions been met where the sponsor could sort of unilaterally make adjustments NBC agreements with DLP.
Clearly the LP in the sponsor highly aligned but just in this environment curious about that.
Yes, no I don't think so I think thats, a little bit of a misnomer in People's minds I mean.
I used the football analogy that obviously, we're trying to hit the 50 yard line as far as a market price.
You know the MPC people will have one view that says it's skewed to MPLX. The MPLX people have a view that skewed to MPC. So I feel very comfortable that were between the 40 yard lines open our best to hit the 50.
So I I know that's a risk that some people have question, but I really don't think that it should get the discussion that it does get a and then Pam you know kind of talked about contractual obligation in an automatic renewals et cetera et cetera. So.
MPC, obviously is integrated to MPLX via the distribution coming back so there's a.
Synergy relationship between MPC and MPLX that I think sometimes people don't understand as much as it is.
Really appreciate it helpful. Thank you Mike.
You're welcome system.
Great and with that thank you for joining us today and thank you for your interest in MPLX should you have additional questions or would you like clarification on topics discussed. This morning members of our team will be available to take your call. Thank you again operator.
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