Q2 2021 MPLX LP Earnings Call
<unk> growth and value creation on their his financial leadership John.
Jon will hit the ground running as he has been part of the marathon team for many years and very deserving of this opportunity.
With that let me start by saying that earlier today, we reported adjusted EBITDA for the second quarter of 2021 of $1.4 billion.
Our operating results this quarter represented 12% increase in EBITDA from the second quarter of last year, and a 10% increase in EBITDA from the second quarter of 2019.
This performance highlights the resumed resiliency of the business irrespective of the challenging macro economic environment.
Furthermore, the company generated excess cash flow beyond our capital on distribution requirements for the third consecutive quarter, enabling the continued return of capital to our unit holders through unit repurchases.
Neuro LNR segment throughput volumes continued to rebound with higher product demand and increased utilization net mpc's refineries in our G&P segment, we continue to see high processing and fractionation utilization in the Marcellus.
We are maintaining strict capital discipline and efficiently executing our growth plans on high return portfolio of investments both the Whistler natural gas pipeline in the Permian and the Smithburg 1 processing plant in the Marcellus began service in July.
Looking forward for the remainder half of the year. We continue to expect completion of the Wink to Webster crude pipeline and the NGL takeaway system, which are both part of our integrated crude and natural gas logistics systems from the Permian for the U S Gulf Coast.
In the G&P segment, the Preakness processing plant in the Delaware Basin remains on track to support anticipated incremental volume from producer customers in 2022.
Our continued focus on identifying and efficiently executing high return projects will support further growth for MPLX.
As part of our work to advance low carbon opportunities. We are actively engaged in evaluating new opportunities for the business, especially where we see technologies complementary with our expertise in asset footprint.
The MPLX footprint spans a large portfolio of assets, creating a robust list of opportunities we continue to evaluate.
We also continue to identify opportunities to structurally lower our cost and drive efficiencies in the business.
When we look at our operating expenses, our 2020 controllable costs were more than $200 million lower compared to 2019.
We continue to improve on this performance with controllable costs in 2021 expected to be incrementally $100 million lower than 2020 for a total of $300 million lower compared to 2019.
Our focus on strict capital discipline combined with growing EBITDA continues to enable the business to generate excess cash after self funding our distribution and capital program. We remain committed to prioritizing the return of capital with nearly $900 million returned to unit holders this quarter through distributions and <unk>.
Repurchases.
As we look into the second half of 'twenty, 1 we expect to continue to generate excess cash if they're all capital investments and distributions and as we've stated previously we plan to execute repurchases based on free cash flow.
Current as well as anticipated needs of the business and the market environment.
Finally, this quarter, we continued to enhance our ESG commitments and disclosures with the recent publication of both our annual sustainability and perspectives on climate related scenarios reports.
Looking at slide 4 I want to take a moment to discuss these reports in more detail on.
Our sustainability and climate report highlights that our approach to sustainability spans the environmental social and governance aspects of our business.
Within this year's sustainability report we've included a midstream specific supplement highlighting the specific topics and metrics that are most relevant and impactful to our industry.
And our climate report you will see we adjust our climate scenarios annually to maintain consistency with the latest IEA projections, including the sustainable development development scenario and the Iea's, New net zero emissions by 2050 case.
We continue to make progress on our target to reduce midstream methane emissions intensity, 50% by 2025 from 2016 levels.
Through 2020, we've achieved 44% of this target or move that further enhances the low carbon profile of our growing natural gas business.
In addition, we've achieved 45% of our target to reduce freshwater withdrawal intensity, 20% by 2030 from 2016 levels and.
In short we are challenging ourselves to lead in sustainable energy by meeting the needs of today, while investing in an energy diverse future that creates share value for all of our stakeholders.
Now, let me turn on their call over to Pam to discuss our operational and financial results for the quarter.
Thanks, Mike on slide 5 outlines the second quarter operational and financial performance highlights for the logistics and storage segment.
Our logistics and storage segment, EBITDA increased $108 million for the second quarter year over year.
Despite headwinds from decreases in marine transportation fees.
And decreases on certain equity method investments the quarter benefited from increased pipeline and terminal throughput as well as the team's focus on operating expense reductions and business efficiencies.
Our pipeline volumes return to pre pandemic levels and were higher than the second quarter of 2019.
We continue to make good progress on our integrated crude oil and natural gas logistics systems from the Permian to the U S Gulf Coast.
Linked to Webster crude oil pipeline in which MPLX has a 15% ownership interest continues to play segments into service and we expect this activity to continue throughout the remainder of the year.
Consistent with our focus on projects with lower return risk the pipeline system has 100% of its contracted capacity committed with long term minimum volume commitments.
On July 1st the week, the Whistler natural gas pipeline was placed into service, providing approximately 2 billion cubic feet per day of incremental natural gas transport capacity to the Texas Gulf Coast markets from the Permian Basin.
Similar to the Wink to Webster project, the Whistler pipeline in which we have a 38% ownership interest is backed by long term minimum volume commitments and we expect volumes and EBITDA contributions to ramp up throughout 2022.
And finally, we continue to work towards an in service date in the fourth quarter. This year for the NGL takeaway solution, which will provide long haul NGL service from the Permian to Sweeny, Texas.
On slide 6 moving to our gathering and processing business.
We provide second quarter operational and financial highlights for the segment for.
For the second quarter of 2021 gathering and processing EBITDA increased $39 million from the second quarter of 2020.
Overall gathered and processed volumes were lower than the same period last year.
In the Marcellus processed volumes increased 2% and fractionated volumes increased 3% relative to the second quarter of 2020.
The impact of lower volume was more than offset by higher NGL prices that were 41 cents per gallon higher than the second quarter of 2020.
This segment also benefited from continued focus on lowering operating expenses.
With inventories low and global demand driving exports of Ngls, we expect strong NGL prices could continue.
During the second quarter, we completed commissioning of the 200 million cubic feet per day Smithburg, 1 processing plant in the Marcellus and the facility was placed into service on July 1st.
We continue to expect the Preakness processing plant in the Delaware basin to be placed into service next year.
Our outlook for the rest of 2021 remains cautiously optimistic with differing impacts across our footprint for.
For example, we experienced increased activity in the Bakken in the second quarter, which we expect to continue in the second half of the year.
We also expect increased activity with volume growth in the Permian.
In the Marcellus our assets are highly utilized and producers drilling plans continue to focus on strengthening their balance sheets and prioritize generating free cash flow over volume growth.
This allows us to generate free cash flow to be deployed in other basins and adds to our financial flexibility.
Moving to our second quarter financial highlights on slide 7.
Total adjusted EBITDA was $1.4 billion and distributable cash flow was $1.3 billion for the quarter MPL.
MPLX grew both EBITDA and distributable cash flow compared to the second quarter of 2020.
The second quarter of 2021 results include noncash impairment charges of approximately $42 million within our G&P segment related to minor changes in the portfolio.
This is part of our ongoing evaluation and optimization of our assets in non core basins.
We will continue to evaluate opportunities to sell or joint venture such operations, where there is a value creation opportunity.
And while macro trends has improved for gathering and processing valuations for assets in non core based on its really have not been compelling.
Our distributable cash flow generated provided strong distribution coverage of 173 times for the quarter, and we paid $729 million and distributions to preferred and common unit holders.
During the second quarter, we tripped returned an additional $155 million of capital through the repurchase of common units held by the public.
This brings the total to $343 million since the unit repurchase program was launched in the fourth quarter of 2020.
We now have $657 million remaining under our current board authorization for the repurchase of common units.
Last quarter, we estimated an increase in expenses related to project work ramping up through the summer months of up to $75 million in each of the second and third quarters.
While there are many factors that influenced the timing of project and maintenance than we do still anticipate higher project expenses of approximately $75 million in both the third and fourth quarters compared to the first quarter.
We remain committed to our strategic initiatives of lowering our cost structure as.
As I stated on the last call. We're confident we delivered $200 million of lower costs in 2020 compared to 2019, those lower costs continue in 2021, and we expect our total controllable operating costs for 2021 will reflect an additional $100 million of reductions from 2020.
Increasing to approximately $300 million in total structural cost reductions made in the business since 2019.
And lastly, as we look into the second half of the year, we still anticipate a higher run rate for capital spending compared to the first half of the year, but total growth capital spending is now expected to be at least 100 million lower than originally guided at $800 million for 2021.
This is dependent on the timing of some of our core business capital spending as well as some renewable and low carbon investment opportunities we are evaluating.
Slide 8 provides a summary of key financial and balance sheet information, we ended the quarter with a leverage ratio of 3.7 times.
Today, we also announced the redemption of the 1 billion callable floating rate senior notes due September 2022. It is our intention to refinance these notes sometime in the future with timing dependent on market and other conditions.
And with our ongoing focus on lowering our costs our strict capital discipline, we expect to continue to generate excess free cash flow that will enhance our financial flexibility, including the ability to return on incremental capital to our unit holders.
Now before I turn the call over to Christina for Q&A I'm going to add a few comments about my retirement for marathon, which I prefer to call. The next chapter of my professional career, because those who know me no debt retirement in the traditional sense does not fit me.
Since 1978, when my career began I've enjoyed a number of roles across multiple industries. However, my 26 years in energy with marathon had been the most rewarding.
We've all seen amazing results under Mike's leadership as CEO.
And as a unit holder of MPLX on a shareholder of MPC I look forward to seeing the results of Mike's vision for the company unfold no doubt the company will remain a leader as the industry embraces an energy diverse future.
I know you will all enjoy working with John Quade, who will assume the MPLX Chief financial officer role effective September 1.
I will continue in an advisory capacity through November 30th this year to assist with the transition.
And with that I would also like to give my thanks to Christina and her team for the way they support our investors on our executives and critique Kristina we can begin the Q&A.
Sounds great.
Operator.
Thank you we will now begin the question and answer session. If you have a question. Please press Star then 1 on your Touchtone phone if you wish to be removed from the queue. Please press Star then 2 if you are using a speakerphone you may need to pick up the handset first before pressing the numbers.
Again, if you have a question. Please press Star then 1 on your Touchtone phone. Our first question comes from John Mackay with Goldman Sachs. Your line is open. Please go ahead.
Hey, everyone. Good morning, Thanks for the time and congrats to your Pam on your next chapter and John on on the new role.
Just wanted to start on the buyback so it's better than we expected, but actually consumed a kind of a lower share of retained cash flow. Then we would expect that kind of on a relative basis. Just curious if that represents any kind of shift in the capital allocation priorities for you guys and I don't know whether it was a coincidence that day.
At the same dollar amount as the first quarter.
Yeah, John This is Mike.
You probably shouldn't read much into it other than what we've said in the past which is.
We're happy to be in an excess cash flow situation right now, we still believe where we're trading debt buybacks make a lot of sense to us at.
At the same time to your point about being a little bit lower than the retained cash is.
I've mentioned this for a couple of quarters you know, we've we've had a couple of things out there. Some vulnerabilities that we wanted to make sure that we protect that.
Apple was 1 that seems to have played itself out a little bit Tesoro high plains pipeline was another so so keeping some dry powder was part of our goal here.
So again, it's a good position to be in we have a lot of flexibility.
I want to believe that we're going to continue to evaluate it constantly in real time so.
I like to use the word dynamic I know we ended up with about the same amount mainly because we kind of put a base plan together and then we have.
A little bit of excess dry powder that we will decide as time goes by so we're in a good position.
No for us going forward, we think all avenues are open to US you know debt.
Debt reduction additional buybacks.
Distribution anything along those lines is all open to us with the main point being is that we're at a point of financial flexibility.
Generating dry powder and having the ability to see what's the best value creation for our unit holders.
Alright, that's helpful. Thanks, maybe I'll ask.
I'll ask 1 on the operating side.
GMP, a little bit weaker than we expected.
Can you, maybe just talk a little bit more about the potential impact from the Sherwood and Mobily outages and then also maybe more broadly about the Utica outlook overall.
Little weaker as well thank you.
Yeah, John I'll, let Greg take that 1.
Hi, John Greg clarity here.
With regard to the Sherwood mob day outage I believe youre, referring to the.
The outage that we had on June 30th.
We did have early afternoon on June 30, we detected a minor release of product at <unk>.
Upstream of our majors for West Virginia plant.
And that turned out to be on the 20 inch Y grade pipeline, which serves our modeling and Sherwood facilities upstream.
We did isolate that debt relief to a leak around a valve on the 20 inch line. It took several days to day inventory line and reduce pressure on to make sure. We had a safe environment to repair the week that repair was made.
On completed on July 3rd so the period from about half of the day on the 30th through July 3rd was the impact period, both of those upstream plants were shut down.
The majors will plant itself was returned to service fairly quickly after we determine the dose.
It was safe.
<unk>.
The the.
The impact we estimate.
The repair and then the opportunity cost was approximately $6 million range. So.
Probably a little bit more of that split over 2 falling over into the next quarter for a few days.
So that really addresses I think the Sherwood marbly outage.
More broadly regarding Utica.
We look at Utica and Marcellus as they're interconnected we have an interconnected purity ethane pipeline as well as our our fractionation NRC III plus Y grade pipelines, and we have onetime weird high utilization in the Utica on our rich gas gathering and processing side. That's that's.
<unk> continued to decline over the past few.
A few years as the focus has shifted to more.
More dry our lean gas drilling in the Utica, but also continued focus on on accelerated drilling in the Marcellus rich and as you've seen we've.
Just had our third straight quarter of 90% higher than 90% utilization in the Marcellus.
A little bit of that is at the expense of probably drilling and focus on the Utica rich.
The Utica is a little bit deeper wells for a little bit expenses in more complex. We think long term, there's still will be.
Many of opportunity in for.
For drilling in that area and the producers are still.
The economics are there there are positive, particularly at current NGL prices. It's just really a matter of prioritization I think at this point.
We also need to look at the fact that the northeast overall isn't really good balance not only are we high utilization, but the outgoing residue gas and NGL pipelines are are nearly full.
Any growth in the Utica, which sort of offset growth in the Marcellus. So it really isn't a pretty good balance situation.
But we think long term, we did see some decline also.
Year over year, and gathering, particularly in the Utica and part of that's driven by the dry gas area, which is still a strong area that really is a matter of timing and some of the.
On the cash flow press.
Preservation and focus.
Related to the Covid demand destruction in pricing last year, even 1 quarter of delay on a drilling program results in 1 more quarter of decline and as we know all of these shale wells decline.
Fairly rapidly and need to be replaced with maintenance drilling. So we look at that as a timing issue, which hopefully and we think we'll recover.
That's really helpful. Thanks for the time sure.
Our next question comes from Jeremy Tonet with Jpmorgan go ahead. Please.
Hi, good morning.
Good morning, Jeremy.
Alright, just wanted to kind of follow up I guess on the low carbon opportunities that you mentioned in the slides and some of your commentary today I was just wondering if we might be able to kind of peel back the onion, a little bit as far as what the specific initiatives there could be more kind of near term in nature.
Just just trying to think of what's real now versus later in your mind.
Yeah, Jeremy I'll, let I'll, let Tim give some color on that so good morning Jeremie. This termite.
I think in addition to what Mike indicated in the opening there. We certainly are and are actively engaged in and many new opportunities and they may range from <unk> to RMG CMG LNG, obviously, we were looking to support renewable diesel and Saf over the course of time.
I think really when you look at our nationwide footprint it really spans.
A large portfolio of assets and I think this in turn does indeed create that robust list of opportunities that Mike mentioned, and we certainly have a lot of flexibility.
But at the same time, we believe this is a multi decade energy evolution, that's taking place and I think it's important for us to take a longer term strategic view.
We understand that many of the energy evolution projects may not yet be economical, but we believe over time. These projects will be developed that evolve the energy space without sacrificing our returns as you know we're very.
Very capital.
Disciplined here and we're going to remain so I think when you look at shorter term certainly the renewable diesel.
The support of the 2 refineries that are <unk>.
MPC has converted.
Provide opportunities our assets are well positioned to run these drop in fuels. So I think that's the shorter term I think the the medium to longer term is probably going to revolve around things like carbon capture and sequestration.
We're bullish on the fact that.
There'll be a Ccs project at some point in the future along the Gulf Coast.
Given the.
Emitters that exists down there. So I think maybe that addresses some of the longer term stuff.
So I'll leave it at that.
Got it that's very helpful. Thanks.
Hi.
This will come on line good to see that entering service here just wondering if you could provide your thoughts as far as.
Permian Basin.
Supply demand takeaway on the natural gas side, I guess, even with Mexico, possibly taking a couple of these over the next couple of years still it seems like the possibility of a new gas tight maybe being needed late 'twenty 3 'twenty for could be there just wondering what your thoughts are on the supply demand balance for takeaway there.
Okay, I'll I'll take that as well.
The return of the energy commodity prices.
It has certainly driven I would consider an improved outlook for the U S shale production.
I think thats resulted.
And the fact that some of the existing capacity is starting to fill within the existing midstream space, but I think at the same time, we witnessed many of our producer customers.
<unk> very focused on capital discipline, especially over the past year, which I think suggest bringing additional production for the market really will require a thoughtful strategy around whether or not they're also willing to support and back additional long haul pipes.
At the end of the day, it's a balancing act for the producers.
And the mid streamers.
And I think the market will dictate the outcome as it always does but I think relative to the timing that that you've mentioned.
I think theres a lot of industry chatter out there that suggests maybe on the $24.25 timeframe that the takeaway capacity will once again be constrained.
Got it that's helpful and Pam best of luck on retirement there. Thanks.
Yeah.
Next we'll go to share this journey with UBS. Your line is open go ahead. Please.
Hi, good morning, everyone.
First off it's been a pleasure working with you. All these years and you will definitely be missed but excited to hear that youre opening up a new chapter.
So please looking for key enjoying that and please stay in touch.
Hum.
Maybe just to pivot to a few questions here.
With the with your standard products is getting over the last year and a half.
He worked for Covid, the Mdc's kind of protected for you on the downside, but theres also a bit and I guess on.
Even recovery just in terms of volumes coming back like locked through the <unk>.
At the stage now where we're fully through the MVC is across your system.
And debt as we see volumes get added.
We have a recovery that we can see 100 per cent of the volume translated into EBITDA from this stage going forward.
Yeah Shneur first of all thanks, Thanks for that kind comments, but yeah I would say that we are we have returned.
2 are pretty robust volumes and they have somewhat correlated with marathons refining.
Utilization now the 1 thing that happens on the pipeline systems is that with the minimum volume commitments. There. There are some provisions that are some of those volumes can be recaptured so.
And so youll see some changes quarter to quarter on deferred revenue as we recognize revenue.
Well, if theres a period of time, when the minimum volume commitments that cannot be.
Reached with them, we will recognize it in the quarter, but so there are some lumpy, sometimes lumpiness that youll see that youll be able to see that kind of work through the system, but overall I would say that we're pretty much back to pre COVID-19 levels.
Refined products side has not been quite as robust returning as the crude side.
And we've also seen a nice uptick in the terminals.
Okay perfect definitely appreciate that.
And then maybe.
As we sort of think about 'twenty 2.
Yes.
Not at this stage of giving guidance, but you've been fairly active on the buyback program, which I think has been much appreciated by investors.
Just kind of thinking about how youre thinking about it with respect to 'twenty 2.
Sort of toggling between how you're thinking about capex for 'twenty 2 are there any projects that you're on.
Permitting stage that you haven't quite talked about yet that could be that can sort of change that balance.
Or as we sit here in August of 'twenty, 1 it's kind of getting late to have something that makes materially impact 'twenty..2 capex just kind of wondering about your thoughts on that on what youre kind of noodling at this stage right now.
Shneur, it's Mike.
Im going to answer that in a second but let me let me make 1 other comment to what you just asked previously on on pipeline volumes 1 of the things that we're benefiting from at the moment debt probably not sustainable long term as you know this.
The virus is still a major impact in the system and it's more outside the U S than it is inside the U S. So so export volumes in the marathon system were down as a result, and MPLX benefits from that as you know pipeline use inside the domestic system gets used more.
So that will probably change itself a little bit once we continue to battle through this pandemic, but that's just 1 comment that I wanted to give you on on the pipelines on that to.
To your second question is yeah, I mean, Tim said, it pretty well to Jeremy's question, we have a bunch of projects that we're watching and looking at.
As everybody gets to know my DNA more is I'm really strict on capital I want to make sure that we get very very high returns. So we're gonna be.
I'll say cautious to deploy capital unless we really feel very comfortable with the projects. We have a bunch that were watching.
Tim mentioned a couple in the alternative energy space, we are going to evolve our portfolio as that evolves, but some of those projects. Today, just you know theyre not reaching our hurdle of return that we would like so I think they'll get there over time I think some of these things will play itself out over time in the meantime, we're gonna stay calm.
And that's why as.
As we set out for the year, we figure at about $800 million of capital you know we.
We've been trending lower than that and Pam and her prepared remarks kind of said Hey, we're probably at least 100 under that and I don't view that as a bad thing because if it delays into next year and the opportunity becomes more mature we become more comfortable with the returns then we will deploy the capital but.
As a general rule scenario I think the business is largely a return of capital business. We're doing a large return of capital via distribution. We've added to that return of capital via buybacks. So that's an important part at the same time, though I am a big believer that you need return on capital.
Well I mean that continues to fund the growth, but we just want to do it in a very disciplined way. So so we have stuff that we're thinking about we haven't disclosed anything to your point, we haven't disclosed anything because we're going to we're going to wait till it's really at a point that we think is a good return and then that way we are checking off return on.
As strongly as for checking all for turn off capital I hope that helps.
No it does.
Very much appreciate it. Thank you again for the update today.
Youre welcome.
Our next question comes from Spiro <unk> with Credit Suisse. Your line is open go ahead. Please.
Hey, good morning, everybody.
First question, maybe ever to your Pam just on the Capex for the remainder of the year.
I'm, just curious what's going to make up that capital spending in the back half as you noted kind of trending sort of lower than that $800 million.
Even with that still struggling on kind of buildup to it with a lot of these projects entering service now so just curious what what comprises.
That buildup.
Yeah, well certainly on the gathering and processing side of the business that we're going to see.
We would expect a little higher spend in the second half of the year.
<unk> been very constrained across the entire system.
On our capital spending and as we entered the first quarter, we were extremely strict.
Second quarter, we would expect a little bit higher ramp up in and really didn't see that materialize I think it's just taking not only the producers that are on teams a little bit longer now having.
Put a lot of things on hold through through 2020 are.
Seeing them start to ramp back up a little bit, but we have some a variety of different projects that as you know we do have some that are coming into service there might be a little.
A delay in spending but the.
The other thing is we have some pipeline projects like some debottlenecking.
<unk> certainly.
Certainly in the Bakken and the Permian, we have some growth those are some of the core basis that we've talked about that definitely in the second quarter Bakken was up nicely in terms of operating.
Activities that the producers there have been putting more drill drilling to work and so pipeline and compression well connects certainly in the Bakken and the Permian are going to be part of that spend and then just some debottlenecking and work that we have ongoing and some of our core assets in the logistics and storage side of the business.
Got it. So we have we also have some tank project set to epitopes.
So it's kind of a I can't say that there's 1 particular project or 2 that really stand out there very substantial.
As you as you noted we have completed some and then just as we tried to highlight given the nature of all the different opportunities that we're evaluating we could see 1 or 2 of these lower carbon projects come to fruition that could require a little bit of capital here in the third or fourth quarter.
Okay. That's helpful. And then secondly, it doesn't count as my second question, but does that sort of skewed 100 million back up to 800 or is that contemplated already on that $100 million.
No that's contemplated in the $100 million.
Okay. Okay, yes, okay that makes sense. Thanks Pam.
The second 1 maybe also for you Pam you mentioned.
Net debt asset sales, maybe not the right time here for some of your underutilized or non core assets valuations. It sound like they are not quite where you want them to be so I'm curious in terms of optimization efforts in joint ventures, which is something you guys are not new to curious what's being evaluated on that front to maybe uplift the value to you of those assets and if <unk>.
<unk> rates at some point could make sense to sort of utilize those assets better.
Yeah, and so we do have a number of different discussions ongoing but it's premature for us to put some daylight on that.
And I don't know, Greg if you want to discuss that a little bit more but typically we don't talk about those kinds of activities until we're complete with negotiations and ready to announce.
Yeah.
Yeah.
Well, we'll leave it there payment John Congrats again take care.
Thank you.
Our next question comes from Keith Stanley with Wolfe Research go ahead. Your line is open.
Hi, Good morning, I, just had some clarification questions on the operating expenses and in volumes for the quarter. So Pam you. You noted Q3 and Q4, you expect opex to be I think $75 million higher than Q1.
So what was the second quarter.
Operating expense then it's still very low and similar to Q1 and then so basically just got pushed out to the second half for the year or is that not the case.
Yeah, Keith I will say you know there what's driving this is.
When we do projects.
A lot of its capitalized, but there's also projects and related expenses that go along with that capital spend profile. So as I mentioned earlier, we probably thought we were going to spend more on the second half second quarter than what we did and what tends to happen is that third and fourth quarter, just given some of the geography of where assets are located.
Sometimes its more favorable to push that spending to the back half of the year certainly third quarter is typically 1 of our highest spend capex quarters.
And so it's really more about timing Keith we did see a little bit of an increase in that kind of expense from the first quarter to the second quarter, but not as much as we expected and then we also saw the benefit.
[noise] of lower costs related to some other head count reductions that took place in the fourth quarter last year and so that continues here into the into the first.
And into 2021, so that tended to mute some of the increases that we saw now when you look at the different line items in cost for the partnership and you're definitely going to see some other line items increasing related to <unk>.
Variable operating costs.
And then certainly purchased product costs that are related to some other contracts in gathering and processing, where we have percentage of proceeds contracts. So you are going to see some operating expenses move around but when we talk about reducing by $300 million. Our operating expenses were talking about those expenses over which we have control that don't for.
Lex with operating volume changes in operating volumes.
Is that helpful. Keith.
That is thank you and sorry to have.
For a detailed questions here I wanted to circle back as well on the pipeline volumes. So okay. The commentary that you are back to pre pandemic levels. When I look at Q2 pipeline volumes there.
They're almost 10% above even second quarter of 19 pipeline volumes from before the pandemic.
Is that correct and is that what you were referring to Mike that some of the export dynamics with demand recovering better in the U S is actually causing some sort of outsized volumes versus pre pandemic levels are on the MPLX pipeline assets.
Yes, Keith that that's exactly what I think is happening right now so I mean, we're still obviously in transition with the pandemic and the good news for U S. As you know we're in a better position than the rest of the globe, but.
Over time, I think that will even itself out in the short term that is benefiting MPLX to some extent as we're getting to run our assets a little harder MPC is keeping more.
Volumes domestic as opposed to exports. So I think that is a little bit of a tailwind for us.
Overall.
Thank you.
Youre welcome.
Our next question comes from Christine Cho with Barclays. Your line is open go ahead.
Thank you.
Okay Alright.
Alright, so on.
On the team provided some color on the Utica outlook, but.
On the Marcellus process volumes were down sequentially.
And is this just sort of a timing thing Pam I think he was the 1 who mentioned that there was.
Hum.
Like some of the teams had pet health work, but is there anything else driving this decline any sort of color on how we should think about the cadence city through year end would be helpful. Yeah, and I think Greg Clark he wants to take that 1.
Yeah, Christine I would say no there's not.
We do have on quarter to quarter, there is variation again.
On the wells the producer volume.
If they don't add wells in a certain steady cadence or even in 1 location or in other you're always having a decline until that gets made up and then youll get a.
New pad comes on and you'll get it on the increase in volume. So overall I mean, you see our if you look at our year over year processing volume in the Marcellus we had growth.
Depending on the quarters and weather events or other things that happen, we will have variation there, but we don't see any long term term issue in fact, where we're maintaining that 90 plus percent utilization.
<unk>.
Over 5 around 5.6 Bcf a day or so that we're processing so.
This continues to be a strong area in pricing as is clearly favorable both in terms of gas on Ngls.
Marcus Hook differentials. So some of our producers are reporting over.
<unk> seen better than Belvieu pricing there so.
Well, you know really good spot in the Marcellus and don't see any issue there.
But I guess as we think about cadence through year end. So like should we think it kind of flattens out from here or you know.
Are there going to be additional well pads connected that that would bring it higher.
Yes, I think again, it will depend quarter to quarter.
We're at such a high utilization level on on gas outflow on NGL pipeline capacity as well as our own utilization that there isn't a lot of headroom for growth. The good news is there's a lot of producers are drilling off of existing pads and using existing infrastructure and and reporting out on maintenance type.
Drilling schedule, maybe some load growth.
Depending on the producer.
But there really is not a lot of headroom there so yes.
We would expect to see maintenance level with maybe a little bit of a moderate growth if prices stay good.
Got it and then moving over to Elena side.
Would it make sense for MPLX to have a role in the Martinez conversion on participate on the logistics side and if so how much capex you know.
Could that translation translate to and then you know attrition. In addition to the logistics would you guys be willing to put any pretreatment or processing units in the MLP.
Christine It's Mike first off on on Martinez, the logistics assets are already in the MLP. So theres.
Theres not really capital required there so that'll be part of that project. So MPC is obviously doing the processing for our D. But MPLX will enjoy the logistics opportunity. So so that's already in the base case.
As far as your second question.
Yeah, we have optionality that that's the nice thing about our structure.
As we move forward like you said, whether it's free treatment or something else, we'll have discussion about what's the best opportunity to create value for both MPC and MPLX, obviously, we'd like to do both at the same time, that's always been our goal. So as those come up we'll debate that and and then obviously you know come out with what we think is the other.
Best solution at the time, but it is definitely on the table to your question great.
Great. Thank you.
Youre welcome.
And our last question comes from Michael Blum with Wells Fargo. Your line is open go ahead. Please.
Thank you Pam I just wanted to add my congratulations and wish you. The best of luck in your next chapter.
Just a couple of questions..1 I mean, you guys are obviously 1 of the largest NGL marketers up in the northeast.
My question is that the Mariner system. It looks like it's going to get fully up and running by the end of this year and I'm just curious how to think about that as it relates to your business is there any puts and takes either positive or negative debt will impact your ability to market for Ngls.
Michael Greg <unk> here again.
We have seen incremental Mariner east capacity come on over the past few years on whether its mariner east 1.2% or 2 ex.
There has been incremental growth that we have we and our producer customers and others have taken advantage of.
I think that.
In terms of its 1 piece that dictates how much capacity.
There is to go that goes out obviously.
Obviously, NGL as 1 controlling factor, but also residue gas pipelines.
As well as processing capacity. So we're operating in that in that high utilization range and so it's really hard to say, whether there's any overall uplift from from additional mariner capacity come on line clearly it's a good thing.
Because anytime you have pipes that are running at high capacity, but you are adding additional capacity takes away potentially 1 bottleneck.
But not sort of a step wise expectation because of the high utilization on all of this will be interconnected systems.
From our perspective.
Got it thanks for that.
My second question is on the NGL takeaway system, the JV with Whitewater on West, Texas gas.
I guess for the question.
I'm sorry, 5 thousands a day of capacity is that fully contracted by the JV and is there any costs associated with this project.
Projects I just wanted to just wanted to make sure I understand how to think about this.
So Michael this is Tim.
I'll take that and others can chime in I think the when you look at the capacity. That's that's the initial phase 1 on capacity of the system.
It is expected to startup in the fourth quarter of this year and then of course, it would ramp over the course of time.
And so there are.
We have some commitments on the system, obviously that debt back that but.
But I think the important part is is that it is the initial phase.
And as you recall, we scaled back the.
For the projects significantly from its original scope in order to meet just the current demands. So this approach I think really allows our partners to leg into any capital efficient solutions or expansions as the basin continues to recover.
It's another example of our strict capital discipline and.
So we're happy with our 25% ownership as far as far as the Capex. It will it will continue to evolve over the course of time, but we don't we.
We don't give specific guidance on a project by project basis on the capital required so hopefully that's helpful.
Great. Thank you so much.
Thanks, Michael.
Alright, well operator, if we have no further questions we'd like to thank everyone for joining us today and thank you for your interest in MPLX should you have additional questions or would like clarification on any other topics discussed today. Please.
Please reach out and members of our team will be available to help.
Have a great day.