Q1 2022 MPLX LP Earnings Call
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Please note that this conference is being recorded and I would now like to turn the call over to Kristina Kazarian Kristina you may begin.
Good morning, and welcome to the MPLX first quarter 2022 earnings conference call. The slides that accompany this call can be found on our website at MPLX com under the Investor Tab, joining me on the call today are Mike Hennigan, Chairman and CEO , John <unk> CFO and other members of the executive team. We invite you to read the safe Harbor statements and non.
non-GAAP disclaimer on slide two it's a reminder, that we will be making forward looking statements during the call and during the question and answer session that follows actual results may differ materially from what we expect today factors that could cause actual results to differ are included there as well as in our filings with the SEC with that I'll turn it over to Mike.
Thanks, Kristina good afternoon, and thank you for joining our call.
Earlier today, we reported first quarter results, which continues to demonstrate the cash flow resiliency and stability of our business.
We delivered adjusted EBITDA of $1 4 billion, which was up 3% from the prior year and we returned over $850 million of capital to unitholders through distributions and repurchases.
Our logistics and storage business benefited from the recovery in consumer demand and our gathering and processing business benefited from higher NGL prices.
This quarter, we also advanced several organic growth projects.
And as we progress crude gathering projects in the Permian and Bakken as well as a number of smaller expansion and debottlenecking projects.
We are investing in our Permian natural gas and NGL takeaway systems, including yesterday's announced the expansion of the Whistler pipeline to $2 5 billion cubic feet per day, driven by growing demand from producers.
<unk> our growth capital focus is largely on projects in the Permian Marcellus and Bakken basins in the Permian Our fourth processing plant is ramping up to full capacity and we're progressing construction of a fifth processing plant, which will take our total capacity in the basin to 1 billion cubic feet per day.
With higher commodity prices, we are seeing a pick up in producer activity across our focused basins.
We will maintain strict capital discipline as we assess these inbounds.
Let me also highlight several pipeline contracts that we have with M. P C, which are coming up for renewal.
Because these pipeline systems are so critical to both MPLX is stable earnings and cash flows and M. P. CS operations. We're in the process of finalizing agreements to renew and extend them for 10 years and we will finished papering them up in the next several weeks well ahead of their scheduled year end exploration.
We believe renewal of our contracts with MPC, It makes economic and financial sense for both entities, our logistics assets under contract with MPC are fit for purpose and an integral to its refining and marketing system.
We also remain focused on maximizing the utilization of all of our logistics assets through business with MPC and third parties.
Shifting to slide four we remain focused on leading and sustainable energy by lowering the carbon intensity of our operations and products, improving energy efficiency and conserving natural resources.
Through last year in MPLX achieved an approximately 45% reduction in methane emissions intensity across our natural gas gathering and processing operations.
As a result of our progress in February we expanded our goals with a new 2030 target to reduce methane emissions intensity by 75%.
We are also participating in a project led by Cheniere energy to further the deployment of advanced monitoring technologies and protocols to reduce greenhouse gas emissions across the midstream sector.
As the energy industry evolves, we're working to continuously improve our environmental performance, while meeting societies energy needs focusing on sustainability and positioning ourselves to continue to deliver positive results in an energy diverse future.
Now, let me turn the call over to John to discuss our operational and financial results for the quarter.
Thanks, Mike.
Slide five outlines the first quarter operational and financial performance highlights for our logistics and storage segment.
<unk> segment, adjusted EBITDA increased $8 million when comparing first quarter 2022 to first quarter 2021 pipeline volumes were up 4% and terminal volumes were up 13% year over year the.
The benefits of these higher throughput were largely offset by environmental costs incurred in the quarter.
Moving on to our gathering and processing segment on slide six.
<unk> segment, adjusted EBITDA increased $33 million compared to first quarter 2021, largely due to higher NGL prices.
For the quarter NGL prices averaged $1 15 per gallon, which is <unk> 42 per gallon higher than the average.
In the first quarter of 2021.
Overall gathered volumes were up 4% as compared to first quarter of 2021, while processing and fractionation volumes were down 1% and 6% respectively.
Focusing on our largest region. The Marcellus gathered volumes were up 1%, while processing and fractionation volumes decreased three and 4% respectively.
In the Marcellus the changes in processing and fractionation volumes were primarily due to the timing of new production.
And looking at the other areas, we saw growth in processing volumes in the southwest as we've added capacity in the Permian.
Moving to slide seven our first quarter financial results demonstrate the earnings and cash flow resiliency and stability of our business.
For the quarter total adjusted EBITDA of $1 4 billion was up 3% from the prior year and distributable cash flow of $1 2 billion was up over 6% from the prior year.
As a reminder, while we strive for stable and growing financial results, our operating expenses can fluctuate quarter to quarter, depending on the timing of various regulatory and maintenance and other project related work.
As we look forward in 2022 these project related expenses could be as much as $50 million higher.
For each of the remaining quarters of the year as compared to the first quarter as we complete this work over the balance of the year.
Looking at other financial highlights for the quarter MPLX declared a first quarter distribution of 70, and a half cents per unit.
Resulting in a distribution coverage ratio of 165 times for the first quarter.
In early March we issued $1 $5 billion of 30 year senior notes and proceeds from this offering were primarily used to repay amounts borrowed under our intercompany loan with MPC.
We ended the quarter with total debt of $20 billion and a leverage ratio of three seven times.
In closing given current business conditions, our commitment to strict capital discipline and our continued adoption of our low cost culture. We expect to continue generating strong cash flows enhancing our financial flexibility to invest and grow the business. While also supporting the return of capital to MPLX unitholders.
<unk> now, let me turn the call back over to Christina.
Thanks, John as we open 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 <unk>, we're ready for questions.
Thank you and we will now begin the question and answer session. If you have a question. Please press Star then one on your cash John phone if you wish.
To be removed from the queue. Please press Star then two and 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.
Our first question today is from John Mckay from Goldman Sachs.
Hi, Brian Thanks for the time why don't we start on the and it's.
Nice to hear you on the call Mike.
Well, let me start on the re contracting I think it makes sense, where around the 10 year anniversary of the <unk>.
IPO can you maybe just share a little bit more on maybe what some of the puts and takes you guys are looking at how those contracts work now.
Are we talking about kind of the whole portfolio or just for the initial set of pipes. So things like the fuels distribution by not being looked at yet thanks.
Hey, John It's John Let me, let me start with that and then Mike can add on if he has any additional comments. So in Mike's prepared remarks, what we're really referring to there or the pipeline contracts rate would have been part of the initial IPO. So in 2012 here we are in 2022.
This year those contracts were set to expire in may based on maybe feedback from investors there were questions on whether or not we were going to renew these and again. We've continued to say these are integral assets fit for purpose for MPC. So the parties really kind of discussed this a little bit earlier in the process.
That contract would have had two five year automatic renewals, we're going ahead and renewing it for 10.
So that's how we've handled the pipeline contract.
We will look to future contracts as we move forward again, I think you would've heard Mike in his prepared remarks that we think.
Removing these contracts is beneficial economically and financially for both entities. So Mike anything you want to add yes, John its Mike I often ask people is there anything we're doing that we shouldnt be or is there anything we're not doing that we should be and to our surprise, we kept getting some questions around contracts with MPC now as I said.
In my prepared remarks, it makes financial and economic sense for both entities. So MPC is going to use MPLX assets. That's a given but we were surprised that people were concerned about that so no our normal cadence as John just said would have been when they come up but since people have asked us about it we said okay. Since it's a question.
<unk> mine will will take that question off the table MPC and MPLX are going to continue to do business, it's integral to both entities and it's a win win for both entities.
Alright, Thats great I appreciate that maybe just as my follow up.
Sure. So I'll ask one on the buybacks and maybe I'll do something kind of more on the macro so it's obviously, it's a pretty strong backdrop for refining.
At least in the second quarter, we've seen product exports pick up pretty hard and you guys have talked in the past about actually having lower product exports is better for the MPLX LMS portfolio. So wondering if you can just spend a little bit of time on kind of talking about what the refining macro should mean for for LLS kind of through that.
Balance of the year.
Hey, John This is Tim ill take that question.
First off do you see the demand for refined products remaining very strong we expect as well that refiners are going to continue to have high utilization rates and they're going to try to meet those market needs that are out there today.
Our pipeline utilization remains very high and our terminal volumes are actually in record territory.
And I think you've kind of notice from the past that we have some pretty strong NBC. So our cost structures are are pretty solid.
And as a result, we don't really have a lot of.
I'd say, it's a muted sensitivity to changes in refinery utilization.
I think thats, a little bit on maybe the backdrop. If you if you talk about maybe the XP.
Exports are bad.
A large portfolio of assets and that includes docs in several locations.
That support these exports could be Gary, though it could be Mt. Airy could be the Galveston Bay docks et cetera, and in general we don't really expect a major swings within LMS revenue based on shifting product patterns.
We have a very flexible system that can swing.
The pipe in the U S Gulf coast or it can swing to the water as as needed and again the nbc's backup several of those systems I think if you look at the crude side.
Our assembly.
Similarly, well positioned I would say that.
Participate.
On the crude exports, we have the south Texas Gateway and we have our loop ownership interest in both of those have those capabilities. So hopefully that's helpful.
John It's Mike I, just I don't know if you were looking at the first quarter results, but if you werent aware of other aren't aware MPC had two outages on the Gulf coast that impacted our business. One was the Texas City power outage the entire city took out our Galveston Bay facility and the other was an unplanned outage at Gary.
So if you are looking at those quarterly results.
Just wanted to point that out as well.
No. That's helpful. I appreciate that this makes a lot of sense I'll leave it there thanks for the time.
Thank you. Our next question is from Jeremy Tonet from JP Morgan.
Hi, good afternoon.
Hey, Jeremy.
Just wanted to touch base on processing needs across your footprint, particularly I guess in Appalachia in the Permian Appalachia Im curious with incremental NGL egress with Mariner East online with the shell Cracker coming do you see more of a.
Move towards the liquids rich production, there and how could that impact your processing and similarly in the Permian, we see tightness in a processing there and just wondering what type of opportunities that might breed for MPLX.
Greg you want to take that one.
Yeah.
Sure. Thanks, Mike.
Jeremy.
Yes to address questions starting with Appalachia.
So the Monaca Plaid is something we've been anticipating and are excited about.
We are.
In the process of building are the latest in our <unk> our fleet and.
At Smithburg and West Virginia.
Which is coincides early third quarter to come online.
Along with that that cracker, but that will that will increase our <unk>.
Our.
Methane production capacity over 300000 barrels a day and if you combine the <unk>.
Pipelines that takeaway ethane out of the basin along with Monaco.
Recently completed expansion of.
Mariner, two and Mariner, two X, which frees up more ethane capacity and.
And the on going increase in prices for ethane I think there is.
The opportunity for producers to recover more.
More ethane in the basin.
In terms of overall activity.
Sure.
<unk>.
I think it's been put.
<unk> announced by a number of our larger producers that they are still.
And maintenance to low single digit growth mode. So.
In terms of liquid production.
Or propane and heavier products, we expect that.
Stay pretty stable.
The takeaway lines are fairly well in balance.
Switching to the Permian, obviously, a big growth area for us right now.
Completing our fifth plant.
Later, this year and in the process continue to ramp up utilization.
Into our fourth plant Preakness, which was put in service late last year. So.
I think that.
It's going to continue obviously with crude prices being where they are banned.
And gas prices theres going to be continued.
Our growth in that area, and we would expect tied to takeaway volume.
Tim you may want to add on the downstream part of the Permian.
Hopefully that answers your question Jeremy.
Yes, Jeremy I would just add that when you look at the Permian.
Theres a lot of forecasts out there that are predicting up to six Bcf a day of of.
Of increased demand by 2028, and Thats going to obviously be a big pull on the not only the processing, but also the the pipeline takeaway capacity. So I think youre starting to see that as it moves the LNG markets are growing so I think youre going to continue to see investments needed.
Across the midstream in that regard.
Got it thank you for that.
And then just pivoting back towards that contract renewals.
You laid out there I'm just wondering.
How would you say the market today compares to the market when those contracts were first sign just wondering if you would say the market is better or worse than one of those rates were first struck.
Hey, Jeremy It's John again remember these are pipeline contracts rather than a lot of them are going to have FERC based rates or other rates that had been moving frankly year to year. So may be a little bit different if youre thinking of our marine contract, which we renewed about a year ago.
That would have had a completely different structure than what's in these pipeline contracts.
Got it so is it fair to assume no real change in the rates as of.
Of material size is that the right way to think about it yes.
So as I was saying the rates have already been changing every year based on other factors. So.
So we're really just looking to kind of maintain the terms and lock in a term that were already planned on renewing so.
Got it I'll leave it there thank you.
Let me just add that most of them are index just like many pipelines are so as John mentioned, it can be indexed at FERC or something else. So.
There is a changing but.
It's still a very market related right.
Got it thank you for that.
Thank you. Our next question is from Brian <unk> from UBS.
Hi, good morning, everyone and make it as good to hear you on the call as well for my first question wanted to dig into the capital allocation framework.
Angela is return of capital strategy.
It appears that it's roughly $200 million are a little more left on the share buyback authorization and I was curious if you could share some thoughts around future return of capital, including potential reauthorization of that by the <unk>.
Back.
Program or a potential special distributions similar to what we saw in <unk> of last year.
Hey, Brian It's John I'll, maybe start with that one and then Mike can add on some comments so.
Again, our kind of framework that we've talked about before remains right. We're going to look to maintain a strong balance sheet, we're going to look to invest through the safety and security of our assets and our employees, we're going to secure distribution.
We're going to look at growth capital, where can we grow the business and then as we look at capital. That's leftover then we get to a point of how do we think about returning that either via distributions whether that be base or perhaps a supplemental distributions.
Our unit repurchases.
If you look at this quarter right. We've said always said hey, we're going to look at the cash flow we are generating each quarter. This quarter, we had about as Mike said $850 million of free cash flow our base distribution was $758 million and we did $100 million of unit repurchases.
So we effectively.
We have looked at where we were there now one of the things, we said last quarter, which I just want to reiterate this quarter as well.
I'm not sure you can look at the programmatic unit repurchases, we did last year and assume that's what we're going to do this year I think we're looking at is how we think about creating value for all unitholders and I think as part of that rate a supplemental distribution is certainly.
Tool for us as we think of return of capital.
Okay.
Great I appreciate all the color.
Maybe just a follow up on some of the growth projects questions. As we start to look at 2023 and beyond you alluded to finish alluded to finishing up your fifth processing plant in the Permian.
At year ends maybe could you talk about potential further growth projects will that include a bangle pipeline expansion and when could we see that and then what are your thoughts around participation in a new Greenfield natural gas pipeline out of the Permian post the announced westward expansion as well thanks.
Yes, I'll take that one Brian So obviously youre right we did.
We did announce yesterday the expansion of the Whistler pipeline two to two five Bcf.
We obviously.
As I just mentioned earlier, there's a lot more growth anticipated on the natural gas side.
Beyond what the Whistler expansion would do in some of the other expansions that are that are being announced.
I'd say that most forecasts call for a second Permian gas pipeline to be required by the end.
By 2025, and a second one by 2028, so certainly theres opportunities there to continue to look for incremental investments we've been very public about the fact that we're going to continue to <unk>.
Look at the extension into the natural gas and NGL value chain.
As for Bangle, obviously, we continue to monitor that.
We did announce in January we brought on another partner in that in the form of Rattler midstream and so with that comes additional dedicated acreage et cetera. So I think that over the course of time youre going to continue to see NGL volumes.
No.
With that we have various <unk>.
Cost effective expansions, we can put in place.
Yeah.
Great I appreciate the color I have a great day everyone.
Thanks Brook, you and once again, if you would like to ask a question. Please press star one and our next question is from Keith Stanley from Wolfe Research.
Hi, Thank you.
First wanted to ask on on the Whistler expansion. So I think the initial project was fully contracted under 10 year terms should we expect a similar approach here and then just any thoughts you can give on how to think about the tariff for an expansion and how that might compare to how you would book at a newbuild overall.
So.
Keith This is Tim I will I'll start that I might not be able to answer all your questions.
Specifically, but.
Again, as we announced yesterday, we are expanding that I think maybe a few things on the way of background in case others have questions.
I mentioned in the first quarter that we were evaluating that obviously, we concluded that evaluation.
One of the things that's important is that the system was originally designed and permitted with potential expansion in mind. So it is very capital efficient does not require new rights of way or any redesign.
From a status standpoint, our compressors are on order, we anticipate the expansion is going to be in service in September of 2023.
As for the contract terms.
Potentially.
We are not able to really talk about <unk>, but I would.
Provide some maybe assistance with that and I would just characterize those as long term.
Take or pay and their fee based which means theyre very ratable cash flows for the JV.
So again being an expansion it is capital efficient and lower risk.
So it's a strong investment, but I'll, probably just leave it there.
Okay, Okay great.
And then second one I just wanted to follow up on volumes in the quarter. So your G&P volumes were down a little bit versus the fourth quarter kind of across the regions and I feel like we've heard some consistent commentary from others today, especially in Appalachia, but.
Just how are you thinking about volumes over the balance of the year and G&P. Both Appalachia and then southwest also it looked like it was down a little bit even with Preakness, presumably ramping up a little.
Greg you want to take that sure.
Keith.
Starting with the.
With Appalachia.
Utica has continued as far as process volume.
It continues to decline his focus has been on some of the the dry lean gas in that area.
So generally the gathering in the Utica swings up and down.
It's most affected by.
By some of the new dry lean wells that come on and the timing of those pads. We did have some weather related impact.
On our processing gathered volumes, which also affects fractionation in Marcellus.
Most of that in early February related to.
Ice and power and freeze offs.
Which drove most of the Marcellus impact.
Yes.
If you go to the west and focus on that yes, we have continued to have growth in the <unk>.
Permian, Delaware, but we also do have some other areas that were either impacted by weather or.
Or by timing of pads coming online.
The Bakken for example had continues to have weather issues.
<unk>.
And as well as the Rockies, but I think the key point is that weather does impact a slot in first quarter.
The other thing that Youll see is that.
Most of the EBIT on a maintenance level drilling program for the full year.
That doesn't necessarily mean flat levels quarter to quarter and a lot of the production because of weather and construction and drilling schedules tends to be more backend loaded. So there will be some more natural decline just due to pad.
The timing of new pads coming online.
Sure it against just the ongoing decline of existing wells.
Thank you that helps.
Sure.
Thank you. Our next question is from Michael Bluhm from Wells Fargo.
Thanks for taking my question.
Just really one commodity prices are obviously very high right now we've seen some M&A transactions in the E&P space.
A few months just curious any updates on your.
Long term.
Initiatives to divest some of your noncore assets.
Any changes in the market.
Yeah, Michael It's Mike we don't really have anything new to report there. We had mentioned a while back that we wanted to change our portfolio a little bit but the market was not at the same place we were.
Since that time, we're now looking at currently $8 gas.
A couple of times on calls are basins are generating free cash flow. So even though some of them are not going to get a lot of capital in the future because they're not long term strategic in the meantime, though they are generating free cash.
So.
We're still steadfast in what we believe is the right valuation for the assets and.
If others met it.
And something could happen, but right now we don't we don't have anything going in that regard at all.
Thank you.
Youre welcome.
And I am showing no further questions at this time.
Alright, well. Thank you everyone for joining us today, if you have any questions that were not answered during the call today. Please feel free to reach out afterwards, we're here to help out any time off.
Operator, thank you.
Thank you. This does conclude today's conference you may disconnect at this time.
Okay.
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