Q1 2021 MPLX LP Earnings Call
[music].
Welcome to the MPLX first quarter 2021 earnings call. My name is Amber and I will be your operator for today's call.
At this time all participants are in a listen only mode. Later, we will conduct the question and answer session Press Star one on your Touchtone phone on to enter the queue.
Please note that this conference is being recorded I will now turn the call over to Kristina Kazarian Kristina you may begin.
Thanks, So much good morning, and welcome to on the MPLX first quarter 2021 earnings Conference call.
Slides that accompany this call can be found on our website at MPLX dot com under the Investor Tab, joining me on the call today are Mike Hennigan, Chairman, President and CEO, Pam Beall CFO and other members of the executive team. We invite you to read the safe Harbor statements and the non-GAAP disclaimer on slide two it's a reminder.
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 is ex we express today.
Actors that could cause actual results to differ are included there as well as in our filings with the SEC.
Now I'll turn the call over to Mike.
Thanks for the field.
Thank you for joining our call.
Earlier today, we reported adjusted EBITDA for the first quarter of 2021 of $1 $4 billion. Despite lingering challenges from the COVID-19 pandemic and headwinds in the business environment, we were able to grow earnings on a year on year basis.
As we mentioned last quarter, we expected impacts of our own this business from the renewal of the marine contract on equipment rate adjustments.
Additionally, our GMP results also reflects some impacts from the severe winter weather, including higher energy costs and lower volume.
We continue to identify opportunities the structurally lower our cost and drive efficiencies in the business and our reported operating expenses for the for the quarter continued the trend down.
We're also maintaining strict capital discipline to efficiently execute our growth plans on our high return portfolio of investments.
Our focus on strict capital discipline combined with growing EBITDA has allowed the business to generate excess cash after self funding our distribution and capital program.
We remain committed to prioritizing the return of capital with over $900 million return the unit holders this quarter through distributions in unit purchases.
Furthermore, we believe our earnings growth combined with the desire of the whole dead flat.
And the reduction in leverage over time.
As we look ahead for 2021, we expect to generate excess cash after capital investments and distributions as we had planned to do.
The availability of COVID-19 vaccines provides hope for the return of global transportation fuel demand and economic recovery.
Even though many uncertainties still exist the world's need for reliable affordable and responsibly produced energy remains important.
We believe we can continue to meet this need through our strategies that will allow us to successfully adapt to the evolving energy landscape by shaping our asset portfolio to meet the challenges and opportunities created by the energy evolution.
Look at slide for I'd like to provide some comments on our commitment to ESG.
The last quarter, we discussed the importance of setting objectives for the organization to drive continuous improvement on the ESG.
Our commitment to sustainability positions us to deliver strong results in this space, including lowering the carbon intensity of our operations and products, improving energy efficiency and conserving natural resources, while using innovative technology to do it.
We've established the program to lower methane emissions at our natural gas gathering and processing business that includes the goal of reducing our methane emissions intensity, the 50% below 2016 levels by the year 2025.
Our broader vision of sustainability emphasizes delivering essential energy products and services to the world in ways that create share value for all our stakeholders.
Let me turn the call over to Pam to discuss our operational and financial results.
Thanks, Mike Slide five outlines the first quarter operational and financial highlights for our logistics and storage segment.
Segment, EBITDA increased $24 million year over year despite.
Despite headwinds from the reduction in our marine transportation fees and lower throughput on some of our pipeline equity method investments the team's focus on operating expense reductions and business efficiencies provided support for the segment.
Additionally, while terminal throughput for a lower compared with the first quarter of 2020 pipeline volumes were in line with the same period last year.
We continued to make good progress on our strategies to create an integrated crude oil and natural gas logistics system from the Permian to the Gulf Coast.
The wink to Webster crude oil pipeline in which MPLX has an equity interest continues to play segments in the service and we expect this activity to continue throughout the remainder of the year.
And segments are placed in service, we expect EBITDA contribution from this project to ramp up throughout 2022.
Consistent with our focus on projects with minimal return risk the pipeline system has 100% of its contracted capacity committed with long term minimum volume commitments.
On the Whistler natural gas pipeline commissioning activities on certain segments are underway in preparation for the projected start up in the third quarter of this year.
Similar to the Wink to Webster project Whistler is backed by long term minimum volume commitments and we expect EBITDA contributions also ramp up through 2022.
Finally, we continue to work towards the in service date in the fourth quarter for the natural gas liquids takeaway solution, which provides long haul NGL service from the Permian to Sweeny, Texas the.
The project will have an initial capacity of 125000 barrels per day with the potential to expand up to 350000 barrels per day.
Before we leave the discussion on our LNR segment I'd like to provide an update on certain contracts between MPC and MPLX.
MPLX continues to work alongside MPC as it progresses, its portfolio of renewable projects, including potential opportunities to expand our logistics capabilities to deliver renewable diesel feedstocks.
Since renewing the marine contract with MPC in January we continue to receive questions around contracts for pipelines that were dropped into the partnership the 2012 and are coming up for renewal.
As we continue to emphasize many of the assets MPLX operates our fit for purpose for Mpc's business and are integral to the MPC refining system.
Furthermore, we believe our crude and product pipeline contracts are at market rates.
As in the past, we fully expect MPC to renew its contracts with the MPLX in the mature over time and for our revenue from these contracts to continue to reflect the strong integrated nature of the underlying business.
Now moving on to our gathering and processing business on slide six we provide first quarter operational and financial highlights for the segments for the.
The first quarter of 2021 gathered volumes were lower than the same period last year across our footprint for.
Furthermore, processed volumes were down in all regions, except for the Marcellus and the Marcellus processed volumes increased 3% in fractionated volumes increased 7% relative to the first quarter of 2020.
The overall operating statistics include the impacts of severe weather during the quarter in the southwest we estimate an approximate $16 million impact to our business from the winter storms with the majority of that impact reflected in our gathering and processing segment results.
This impacts included.
Reduced volume at some of our facilities as well as higher energy costs.
Gathering and processing segment EBITDA increased $34 million from the first quarter of 2020. This was supported by higher natural gas liquids prices and lower operating expenses, helping to offset the impact of lower volumes as well as the cost incurred due to the severe weather.
In line with previously announced efforts around portfolio optimization, we did close on the sale of our javelina plant in Corpus Christi, Texas in mid February.
In the Marcellus, we have begun commissioning activities for our Smithburg, one processing facility with a targeted in service date in the third quarter.
Now moving to our first quarter financial highlights on slide seven total adjusted EBITDA was $1 4 billion and distributable cash flow was $1 1 billion.
MPLX grew both EBITDA and distributable cash flow compared to the first quarter of 2020.
Our distributable cash flow generation provided strong coverage of one five times for the quarter and we paid $754 million in distributions.
Furthermore, MPLX continues to self fund all capital investments and distributions to unit holders with $277 million of excess cash flow of remaining after these activities for the quarter.
In addition, we returned $155 million to unit holders through the repurchase of over 6 million publicly held common units under our unit repurchase program.
As of March 31, total repurchases of $180 million have been made since the program inception was launched in the fourth quarter of 2020.
Given continued uncertainty facing the economic recovery, we were extremely disciplined in our expense and capital spend for the first quarter.
This caution helped to drive the significant amount of excess free cash flow generated during the quarter.
Looking forward, we have not changed our guidance on gross capital investment of $800 million for 2021. This implies a higher run rate of capital spend for the remaining quarters.
As we increase our growth capital project related work the tends to ramp up through summer months. We also expect to see a meaningful increase in the projects that are expense.
Subject to many factors that influence timing of project and maintenance spend this amount could be sequentially higher by as much of a $75 million in the second quarter relative to the first quarter spend.
With our continued capital and expense discipline and growth in EBITDA, we expect to continue generating excess cash flow for 2021, providing financial flexibility to pursue value, creating opportunities for our unit holders including unit repurchases.
We intend to remain flexible with our unit repurchase program and expect the pace of unit repurchases to be informed by market conditions, the business environment, the amount of excess cash generated in prior quarters.
Other factors.
On slide six we provide a summary of key financial and balance sheet information and I want to highlight that the inflection to generating excess cash and returning capital to unit holders has not compromised our focus on maintaining a strong balance sheet.
We ended the quarter with the leverage ratio of three nine times approximately $2 7 billion available under our $3 5 billion bank revolving credit facility and $1 5 billion available on our intercompany facility with MPC.
We intend to maintain our investment grade credit profile and as Mike mentioned earlier hold our debt flat with strict capital discipline growing EBITDA and stable debt, we believe leverage will decline over time.
So now let me turn the call back over to Christina.
Yes.
Thanks Pam.
On the call for questions. We ask that you limit yourself to one question plus a follow up we may re prompt for additional questions as time permits with that we will now open the call for questions.
Operator.
Thank you we will now begin the 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 queue. Please press Star then two if you are using a speakerphone you may need to pick up the handset first before pressing the numbers.
Once again, if you have a question. Please press Star then one on your Touchtone phone. Our first question comes from Jeremy Tonet with J P. Morgan. Your line is open. Please go ahead.
Hey, Good morning, guys. This is James on for Jeremy.
Just wanted to start on the buybacks it seemed like the strong progress was made through the first quarter. I was just wondering any color you can share on the cadence for the rest of the year or if theres any bogeys or other factors you look out to allocate capital to buybacks going forward.
Hey, Good morning, James This is Mike.
On buybacks you know the best guidance, we can give you a tried to say this a couple of times of.
It's gonna be a dynamic process for us.
Not a program that we just said and walk away from so.
We've tried to be transparent that we were driving the excess free cash flow.
We achieved that which we said back in the latter part of 'twenty and into 'twenty one.
So the way we're going to look at it is each quarter as the market moves and we have more intelligence about the market the unit price the outlook et cetera, et cetera, we're going to look at what's the best way to deploy that excess cash.
<unk> is obviously something that we prioritized in the recent terms, especially since we're trading at the yields that we're trading at but but we have all the levers available to us and of buybacks distributions the debt capital.
All of those avenues are available to us.
And as a management team, we're going to continue to talk about things for the quarter and continue to make what I call real time decisions or a dynamic process.
Try and trying to be receptive to the market conditions at the time and trying to provide the best unit holder value.
That gives you a better feeling as to how we're thinking about the process.
No it does and I appreciate it I appreciate the color there.
And then just for my follow up of shifting over to the renewable side you mentioned, the new renewable diesel opportunities set and the per remarks I was wondering if you can elaborate on how far out on that and if there's any capital allocation. This year and then maybe just the second part of the question looking at carbon capture.
If you kind of foresee the 40 <unk> tax credit is being sufficient to incentivize our capital allocation there.
Yeah.
Yeah, James I'm going to let Tim jump in with the more detailed but I'll just say in general we're obviously aware of the energy evolution. That's occurring there is a lot of opportunities that people are exploring Tim and his team are looking at you know a lot of different things. So I'll, let him give some of some color here.
Well Jeremy on the $45 two credits I guess, the kind of depends in general of a 45, two and is the primary of incentives for carbon capture.
And sequestration and if you've got the right environment. It may drive the competitive project, but if you look at most of those out there and it requires stacking of incentives and sometimes the variable cost depending on the capture of transportation and sequester costs come into play. So if you have projects of low capture cost of minimal transportation.
And some favorable geology, well, then then that might cover it but the other projects from the require things like L. CFS uplift for certain products.
In order to hurdle of those higher cost. So again kind of depends we do expect the government policies on will further define the regulatory framework.
It's possible.
There could be additional incentives that come down the down the pike.
Got it that's very helpful. I'll stop there I appreciate the questions.
Youre welcome for our next right.
Sorry about that our next question comes from our estimate of that scope with UBS. Your line is open. Please go ahead.
Good morning. Thank you for taking my question. So I think the follow up on that question.
Our renewable investments could you maybe provide more color on the scope of potential returns from the investments that you are looking guy.
The renewable investments thank you.
So we haven't gotten to a detailed point of disclosures on the things that we're looking at I think the takeaway that you should think about as you know, there's a pretty myriad opportunity set in front of US now Tim just mentioned carbon capture is one thing that we're looking at.
Pam mentioned renewable diesel is obviously being advanced by MPC lower on the carbon intensity of products is going to continue to be athene. The plays itself out there. So we haven't given any detailed disclosures other than to say that we're cognizant of the environment that were in.
I like to say people are talking a lot about hydrogen at one end of the spectrum I think thats a little further out in time, but it is something that we're evaluating as we go forward. The MPC is in the business of hydrogen. So that's something that we're very close to you know at the same time on the near in as Pam mentioned renewable diesel is on the front end.
As Tim just mentioned carbon and any types of activities around there are all of front and center for us. However.
However, we're going to make sure that when we advanced the ball on there that we could have a really strong return. So we are going to maintain capital discipline not jump at something it just appears to be good we're going to make sure that at the end of the day. It gives us a good return and provides value to the unitholders.
It's the Pam I just wanted to jump in and add to Mike's comments there on the other thing that that we should talk about is the fact that we're very bullish on the role that natural gas is going to play.
Even as we go through on energy transmission. So we continue to look for opportunities to participate in the natural gas value chain in the downstream of the operations that we have today.
And Tim talked about of the.
Some of our pipeline.
The pipeline activities and I don't know the team. If you wanted to add anything on non mentioned like the natural gas storage investment through our joint venture. So we're looking for those kinds of opportunities as well because we think the natural gas is going to be an important part of the energy solution well into the future.
Thank you.
What do you think the latest rig count or on your footprint. The northeast the processed volumes were down a little bit of <unk> versus for Q do you expect the recovery throughout the southern cone of one.
I'll, let Greg take that one.
It is from Greg <unk>.
With regard to the northeast outlook.
NGL prices.
And in more currently gas prices are supportive.
Of additional development in the northeast.
Rich rich gas drilling remains focused primarily in the Marcellus.
And more of the dry our lean gas drilling in the Utica.
We do see seasonal depending on the season and particularly in the wintertime and maintenance schedules, we do see fluctuation in volume.
Quarter over quarter, but.
In general.
The northeast is the key basin for us and we think NGL prices, including the strip price and current inventory levels are supportive of potentially more rich gas drilling.
In the region.
Thank you I have a great day.
Yeah.
Youre welcome.
Our next question comes from John Mackay with Goldman Sachs. Your line is open. Please go ahead.
Hey, good morning. Thanks for the time. This is one of the circle up on the buybacks understand the variable number that will move around quarter to quarter, depending on how much cash you have of leftover.
Curious if the javelina proceeds for kind of rolled into that number or if you see the the 150 ish you did this quarter as being kind of a.
Healthy number that the base business can generate.
Yes, John Thanks, It's Pam I'll take that question, so and we talked about the fact that we actually generated $277 million of excess cash after funding of distributions on our capital program.
That surplus cash did include proceeds from the Javelina sale, we did on deploying $155 million of that into unit repurchases.
But I also highlighted that the first quarter, we were extremely conservative on all forms of cash that we spent.
Just given some of the economic uncertainty as we move through the beginning of of 2021, not knowing how the pandemic will play out so we do expect to see higher capital in.
In subsequent quarters and also some increase in expenses related to projects that we do that our expense and as I've highlighted in some prior calls.
Some of our maintenance activities as for I'll highlight the API 653 tank work, we expense that work on other companies capitalize it though as we move through the year and maintain our assets. We will have some increase in costs related to those activities. So didn't want people to get so focused on the high amount of ex.
And of cash that we generated during the first quarter.
Alright, Thanks, that's helpful and maybe the follow up on the Pam just the last comment you made I guess thats.
That's the $75 million of incremental cost to you are referencing earlier and I got the it sounds like thats not part of the unnecessary.
Necessarily of the overall capex budget for what to think of it.
Yes, that's correct John those would be that would show up in our operating expenses.
Okay, Great and maybe if I can just squeeze in one more.
Look the Utica has been kind of a lot weaker than we hoped for for the last couple of quarters.
Just curious if you can get us give us any more specific thoughts on what's going on for those assets, maybe if there is.
Ben.
I don't know if anyone off that the.
Turn there and then any of your efforts on.
Optimizing that footprint I think you've talked about a little bit on the last call.
Yeah. This is Greg.
With regard to the Utica as I mentioned most of the focus there over the last few years of spin on and drilling the.
The dry Utica areas and we did see a quick ramp up in that and we saw.
Peak levels.
Probably about a year ago.
The the rich Utica has been on.
On a path where.
New drilling of new wells have not been sufficient to offset the.
Of the normal decline of existing wells, So we're hopeful that the Utica.
The current NGL prices.
We'll actually incent more drilling in the rich area of the Utica.
But the larger.
The impact that you've seen is where we see the largest swings as on the dry gas area. It's the largest volume in the.
If there's a timing issue on drilling.
That shows up.
And the larger volume of larger percentage.
The way we are.
So bullish on on Utica dry gas drilling and.
We are hopeful that hub.
But we'll see.
The continued to see good progress in terms of growth from the future of there.
Yeah.
Okay. Thank you for the time.
Youre welcome John.
Thank you we will now go to Spiro Dennis of Credit Suisse. Your line is open. Please go ahead.
Hey, good morning team.
Mike of course.
For your frame 'twenty, one EBITDA with one of your banks of the river analogies may Thank you.
Kind of put in the range of $4 nine to $5 3 billion, just annualizing some relevant 2020 quarters.
I know you don't give official guidance, but curious of few months in now do you still feel like that's the relevant range and if you are leaning heavily on any direction there.
Yes fair, it's Mike so.
The main reason that we don't try to guide to that is we don't have control of the volumes that come out of the system in general Yeah, We make our best guess at it.
I think youre referencing the last quarter, Pam gave a little bit of the of the banks of the river and that is how we think about it so.
We're obviously happy when we're seeing the market the same way that the upstream side of the business does but but our biggest challenge is we just don't control it so.
I'll tell you we keep a look at the things we think about scenarios and then we step back and we concentrate on the things that we do control. So we've had a lot of emphasis recently on cost reductions and I think youre seeing that in our in our earnings year on year.
At the same time, we're very cognizant of what are the scenarios. The can play out for cash and like you know a couple of the questions that were asked earlier is we're evaluating how the capital is going to play itself out through the year.
<unk> said, we're still committed to that guidance, Tim and his team are evaluating whether there's economic support for us to enable some of the projects.
At the same time, we're going to keep the the disciplined pretty high on that.
If it stays high and we don't want to execute on those we'll give that a little bit of time to percolate some more.
And then use the cash for the other levers that we have so so so you're right in that we think about scenarios and we think about what if everything goes our way and then we also think about wood of things don't go away I mean, our goal of sparrows to try and be as transparent to the market as we can we try and talk about not just the good things with the risks that are out there.
We've said we have two risks that people are very aware of the Apple and what's going to play out in that regard.
Again, we don't control it, but we try and scenario planning around around it.
Zero of high Plains pipeline and other risks that we have out there that.
We.
We have our opinion of the way, it's going to play itself out, but we don't control. It. So that's kind of the process going back for the very first question of how do we think about this this excess cash.
We're in a good position it's the place we wanted to be where we have these choices and levers and then we try and take our best inputs as to all the information we have at the time, we see how the market plays itself out of.
Obviously everybody's pretty excited about the rollout of vaccines and the impact that that's starting to have on the economy and we are too.
At the same time, we're still gasoline demand in the U S is still less than it was pre pandemic roughly 5% somewhere in that range and then it varies regionally, it's still lower on the west coast.
Impacted more by the pandemic than say some of the other regions. So we're just like everybody has.
Have tempered optimism towards recovery.
But at the same time, we just got to be careful about the data we don't want to get in front of ourselves and I think you hit it on the head I've been trying to explain this concept of scenario planning and some probabilities.
And then we're just trying to make the best decision as we can on a real time basis. So.
I hope that gives you a little more flavors to how we're thinking about it.
We don't control of that exact ups of.
Extreme number we watch it we trend we talk to our customers et cetera, et cetera, and then and then the reality just like everybody. You know those companies are doing the best they can do on a quarter to quarter basis, just like we are.
The does that help you at all.
It does Mike appreciate the all of the color there so understood.
The second one just on the renewables again, sorry to keep it on this but just curious how you're I know, it's early days, but curious how you're going to approach capital allocation, I guess and how you're thinking about the blueprint there and I guess, what I'm wondering is to the extent of <unk> got competing conventional projects versus the renewable projects and they more or less have the same return profile.
Go to the renewables.
Are you looking at those projects through a different risk Glen I'm curious if this is an area where we could see you do more sort of JV opportunities with established players out there.
Yeah, I think you hit it on the head ties would go that way we are conscious that over time.
Renewables are going to be a bigger part of the energy landscape. So there's no doubt that we're conscious of that you know the <unk>.
That's going to occur and the economics behind how that occurs is still up in the air.
Tim mentioned once the specific projects that people are spending a lot of time with but theres. Many on the horizon right. Now you know I would say that the list of things that we're looking at is pretty long.
The ready to execute today, we're still evaluating some of these things. So I think you hit it on the head, though as far as where would we invest we want to try and put our capital into an area of that theres going to grow over time, we do believe that the energy evolution will continue to occur over time some of the areas I think of.
<unk> a little bit ahead of its time as far as the rhetoric. Some of the areas I think are very current so on.
All of those types of things the way you described it I think is exactly the way we think about it and then like I said just like we were saying earlier is even an individual project, we will start to talk about some scenarios around it.
You hit your head of really of important point as well what are the.
The risks around it and what's the term of it and how much support that we have for and how many customers on what's the.
The credit capabilities behind it all all of those things come into play.
I like to think that our job is to have a very robust process.
And the very cognizant of capital that we could return to unitholders. If we chose to deploy it in the capital spending that we got to feel really confident that it's going to deliver a lot of value. So that's why I think if anything we're trying to leave you with we've raised the bar on capital discipline, we're trying to be as Congress as soon as we can of the.
The market as it evolves and at the same time, we're in a nice position to have some levers to deploy cash on a lot of different ways.
Great. That's all I had thanks, Mike Thanks Pam.
Youre welcome Sir.
Our next question comes from Michael Blum with Wells Fargo. Please go ahead. Your line is open.
Thanks, Good morning, everyone.
Maybe just to stay on this topic a little longer.
So just to understand it a little better so you've got your sort of the big three midstream projects that you outlined.
Beyond those it sounds like there's not going to be a whole lot necessarily in terms of larger size projects on the midstream side and then on the renewable side, it's TBD, but it sounds like all of us being equal.
Those will take more time to develop and so therefore.
The capex should probably trend lower at least in the near term looking at 'twenty, two and beyond just wanted to know if that's the right way to kind of think about it.
Yeah, Michael I'd say, you know you're in the right church, whether you turn out to be in the right deal or not time will tell.
I think we are describing it just very much the way you did as Theres a lot of projects that the team are looking at maybe more bolt on.
Lower capital higher return.
As opposed to like you said, the big Bang that gets a lot of press.
But we're very happy with the big projects that we've done you know the team we have MVC protection behind the higher capital deployment ones and the NGL projects turned out to be of real good project for us Tim and the team put together a a nice lower capital solution for our customers. So that's worked out well so yeah right now we're looking at.
What's the best return projects, they may be smaller bits of capital.
Pam said right at the moment, we're still feeling that that capital guidance that we've given as good as.
As we progress through the year, if the if it looks like things are going to take a little longer than it will be a little bit under that and that's kind of what we said.
Last quarter as well so we're trying to give our best transparency, but I think you described it well.
It's not that we're opposed to doing something of a larger nature.
If it comes to fruition.
We're not opposed to that we're not opposed to looking at anything that creates a lot of value, but but in the short term.
The capital discipline is of higher priority lowering cost was the higher priority generating increases in the.
The amount of earnings that we establish as kind of where we're putting a lot of our focus.
Thanks, and then.
Another part of the plan has always been portfolio optimization, particularly on the on the G&P side of things and I know that that market has been pretty slow in the lab.
Asked a bit of time I'm wondering if there's any change there that you are seeing.
There hasn't been any change to date, Michael but you know as you can see gas prices are now close to $3.
On the benchmark so things are looking at the Pam said it earlier.
Probably one of the biggest things that we've debated with the sales side and the buy side for a while is our natural gas business.
As Pam mentioned it earlier, we think the natural gas will be an important part of this energy evolution over time.
We've kind of defend that our natural gas position when people of questions. A lot of you know why are we in this business I think people are starting to see a little bit more of the stability that we've talked about.
And some of the resiliency in our on our cash flows. So I hope people are seeing a little bit of what we've been thinking for a while and then it's going to take a little bit of time as mentioned earlier and Greg commented on it.
The rigs are starting back a little bit more on the oil side now that we're at.
The $60 oil so youre seeing the rigs start to come back in that area on natural gas, we'll expect that to occur over time as well, albeit in a new dynamic where producers are going to be a little bit more stringent about managing their cash flows, but I think in the long term, we still like the position. We're in we like the business that we have.
<unk>.
We're hoping the market has seen the resiliency that we've kind of talked about I haven't had as much of the chance to display of but the pandemic has given us that opportunity to show you.
Year on year earnings growth in 'twenty, and we continue to show that so so hopefully that gives the picture of what we're trying to do in the meantime, I've tried to explain.
The quarter, we continue to evaluate the market evaluate the projects.
I think you said it well we don't have a major one that we are ready to announce at this point, but we're looking at everything so we spend a lot of time looking at the portfolio right at the moment.
Nothing on the front burner.
As far as the question of people have been asking us about divestments. So we don't have anything on the front burner and the main reason I say debt as we like our assets, they're generating free cash.
On the big believer in our assets at the generate free cash in the assets that we think are.
Are challenged we will put a little bit more attention there, but in the meantime, while they generate free cash the contributing to the partnership. So I think that's the big key where we're not forced to do anything.
I use the term, we're not giving any assets away. So if we got of value that we thought was appropriate to create value for the unitholders and we would execute on it but we haven't seen that to date, we've been very open about we've run a few processes and at the end of the day, we have not seen things debt that we think would be of the value of us holding holding the assets on.
Yourselves.
I hope that helps yes, thank you very much.
Youre welcome Michael.
The last question comes from Keith Stanley with works Free store Research. Your line is open. Please go ahead.
Thanks, Good morning.
I just wanted to first clarify the operating cost commentary again, so was it of $75 million increase quarter over quarter in Q2.
And that's kind of a good run rate from there or our cost just a little inflated in Q2, and then Relatedly you talked on the release again to being committed to lowering the cost structure.
You've already done a lot should should we read that as there is potential for another sort of meaningful round of cost reductions or is most of the the low hanging fruit already done at this point.
Yeah, Keith its Pam I'll take that so just to clarify that $75 million increase that was the sequential increase from first quarter. The second.
And in especially around some of the <unk>.
<unk> that we do that our expense instead of capitalized now we did make a meaningful reduction in the total cost operating costs from 2019 to 2020 and those continue into 2021 in fact, we mentioned on one of our on previous calls debt.
Some of our work force reduction activities didn't take place until the fourth quarter. So we had talked about you know 200 million dollar commitment that we knew we could deliver on $200 million of operating cost reductions and then we said the the.
The benefit of the lower workforce would be reflected in 2021. So we're the we're definitely seeing some of that as you know here in the first quarter and we will see that throughout 2021.
And as you look at 2021 compared to 2020, our operating expenses will be lower it's just that sequentially because we had generated so much cash in the first quarter.
And our spending was so low in fact, I haven't seen our capital investment the smile on a quarterly basis since 2014 and before we acquired the natural gas business. So I just didn't want people to think of that I'm going to remain every corner of that low. So just trying to find a little more color on there I hope that's helpful. Keith.
It is in the second part just on on.
On if theres more to come that that's meaningful on cost reductions just given you guys have already done a lot on that front.
Yeah, I would just say on the margin we're going to continue the continuing to focus on managing the business as Mike likes to call. It meets our mantra strict capital discipline and strict expense management.
Yes, Keith I'll, just add a little bit for that.
One of the things Youre question is very similar to what we get we have the sports analogy what inning, you're in or the quarter of the football game et cetera.
I like to think about it is every every game if I use the football analogy every game that we approach we're going to ask ourselves.
The areas that we can still challenge ourselves more in but we're clearly we played the first half of if you want to use that term and we are evaluating as the other opportunities.
As everybody knows there is diminishing returns ultimately there's only so much you can challenge yourself, but.
I'm, hoping that we're leaving the market with.
Every game plan every time that we think about this we're going to be asking ourselves that question because the market continues to evolve and.
Our cost structure is something that we should not put the playbook down on and say that's behind US now it's something we're going to continue to watch continue to challenge I do give the team of lot of credit when I asked everybody to look at.
This concept of changing the cost structure I think the team's done a really nice job of looking at it and there are some areas that were still questioning and to be perfectly Frank some areas of go in and you think you can do ex and it turned out to the Y plus or minus and then the same thing in some other area.
Do a little better than you originally thinking you might do a little worse of the point being is you keep challenging you keep looking at it keep asking yourself. The question of is there an opportunity there.
I personally am of cost Hawk and a lot of ways.
It's sexy to talk about revenues, but you know of dollar of revenue on a dollar of expense get the same dollar to the bottom line. So so it's something that is top of mind for me all the time so hopefully.
Hopefully it'll it'll stay in focus for you guys to see how we progress on that.
Great that's helpful.
The second question just.
You guys have talked on and you always knew about growing EBITDA in the business and then you also address just the the 2012 pipeline assets and contracts pretty clearly so when you look out over the next I don't know call. It two to three years.
What are the main levers you think that grow EBITDA of the company and are are there any notable headwinds or things to be mindful of beyond the marine contract. This year that could be headwinds over the next call. It two to three years.
Yeah, Keith I like I said, one of the things that we hope the market likes of out us as we try and be as transparent as we can especially on headwinds so the.
The two that we've said are very much out there that are of material is the dapple situation and it's the sort of high plains pipeline Tesoro High Plains. We thought was resolved it's kind of gotten bounce back now again, so its back out on the table.
So those two issues are material nature of <unk>.
So those are.
Potential out there now again people ask us what do we think is going to happen on again, we don't control that we watch the the.
The court proceedings et cetera, just like you guys do but those are out there.
Pam was very transparent when we said the marine contract is going to be a significant change to us roughly of $100 million.
I think we gave everybody advanced notice on that so we will continue to be transparent on contracts.
I liken it to very much for the questions. We used to get on the G&P business. All the time people really worried about that.
On the contract side, we don't have anything on the horizon that we need to make people aware of in fact, if anything we're trying to make the relationship between MPC and MPLX more of a win win over time and the way that we can integrate and try and drive value for both entities is really the main goal. So.
If we see something that we think is an issue that we need to make you aware of.
And we'll certainly disclose that.
Pam I think has done a nice job of that in the past and that will continue to be our mantra. So we don't want of surprise the market with anything.
How the Apple goes I think everybody is watching to see how that plays itself out as an example.
And if there is something else that we think is a headwind we're certainly going to make you aware of it.
Thanks very much.
Youre welcome.
That was our last question.
Perfect. Thank you. So thank you everyone for joining us today and thank you for your interest in MPLX should you have additional questions or would like clarification on any of the topics discussed. This morning members of our team will be available to take care of call have a great day.
That concludes today's conference. Thank you for participating you may now disconnect.