Q2 2023 MPLX LP Earnings Call
We continue to challenge ourselves to lead in sustainable energy by meeting the needs of today, while investing in an energy diverse future that create shared value for all our stakeholders.
Now, let me turn the call over to John to discuss our growth as well as our operational and financial results for the quarter.
Thanks, Mike.
As Mike referenced in his remarks, MPLX has a strong history of successfully executing the strategic priorities of strict capital discipline, fostering a low cost culture and optimizing our asset portfolio all of which are foundational to the growth of MPLX as cash flows and through the first half of this year distributable cash flow has.
Grown 6% year over year.
Looking back over the last three years as you can see on slide five our growth is not linear, but instead tends to come in stair steps as we develop and bring projects online.
For 2023, our capital program outlook remains at $950 million, including $800 million of growth capital and $150 million of maintenance capital.
And the O N S segment, our joint venture projects in the Permian are progressing we see strong demand for the Whistler natural gas pipeline and its expansion to $2 5 billion cubic feet per day, which remains on schedule for completion in September .
We're also planning to expand the Bengal joint venture pipeline to 200000 barrels per day as we look to grow our participation in the NGL value chain.
The capital efficient expansion of this long haul pipeline is supported by existing and growing demand for NGL takeaway from the Permian, Delaware and Midland basins to their fractionation hub and Sweeny, Texas, we expect the expansion to be completed in the first half of 2025.
On the Wink to Webster crude pipeline, we expect volumes to ramp this year and over the next two years as the pipeline continues to place segments in service.
And as a reminder, these three projects Whistler bangle and wait the Webster are largely financed at the JV level and therefore, our portion of the debt finance capital spending is not reflected in our capital outlook.
In the G&P segment, we remain focused on growth investments in the Permian and Marcellus basins and response to producer demand.
In the Permian, Delaware Basin, we continue to bring online new gas processing plants to meet increasing customer demand, while targeting strong returns with strict capital discipline.
Our tornado two processing plant began service at the end of last year, and we are advancing construction of Preakness, two which we expect to be online in the first half of 2024.
We recently approved plans to build our seventh gas processing plant in the basin Secretary It which is expected online in the second half of 2025.
This will bring our total processing capacity in the Delaware basin up to one four Bcf per day.
In the Marcellus Basin. We are also progressing construction of the Harmon Creek, two gas processing plant, which we expect will come online in the first half of 2024.
Slide six outlines the second quarter operational and financial performance highlights for our logistics and storage segment.
The LNR segment reported its second consecutive 1 billion dollar adjusted EBITDA quarter.
<unk> segment, adjusted EBITDA increased $56 million when compared to second quarter, 2022, primarily driven by higher rates and growth in total throughput.
Crude pipeline volumes were up 4% and represent a new quarterly record for the partnership.
As we grew crude oil throughput through expansion and Debottlenecking activities.
Product pipeline volumes were down 6% driven by more favorable market dynamics in the second quarter of last year and effects from marathons refinery turnarounds.
Terminal volumes were up 3% due to effects associated with marathons refinery turnarounds in both quarters.
Moving to our gathering and processing segment on slide seven GMP segment, adjusted EBITDA increased $18 million compared to the second quarter of 2022 as the benefits of higher volumes and throughput fees were offset by lower NGL prices.
While our GMP segment is largely a fee based business. We do have some direct sensitivity to natural gas liquids prices for the quarter NGL prices averaged <unk> 63 per gallon as compared to $1 18 in the second quarter of 2022, resulting in a roughly 15 million.
Headwind for the further results.
Total gathered volumes were up 9% year over year due to increased production in the Utica and the Permian.
Processing volumes were up 6% year over year, primarily from higher volumes in the Marcellus and Permian driven by increased customer demand and our investment in Permian processing capacity.
Focusing in on the Marcellus by far our largest basin of GNP operations, we saw year over year volume increases of 3% for gathering and 5% for processing driven by increased customer demand.
Fractionation volumes grew 10% primarily due to recent increases to our fractionation capacity to meet in basin demand for ethane.
Our capital allocation framework remains unchanged and year to date, we have returned $1 $6 billion through distributions to our unit holders.
We continue to expect our distribution to be our primary return of capital tool.
And opportunistic repurchases of units held by the public also remain a tool to supplement capital returns the <unk>.
Growth of our cash flows and strong balance sheet, including a quarter end cash balance of over $750 million provides us with financial flexibility to continue to optimize capital allocation and return of capital.
Now, let me hand, it back to Mike for some final thoughts.
Thanks, John and.
In closing.
<unk> growth strategy continues to support our commitment to return capital to unitholders.
<unk> remains a strategic part of Mpc's portfolio supported by over $2 billion MPC expects to receive annually from MPLX distributions and as MPLX pursues its growth opportunities. We expect the value of this strategic relationship will continue to be enhanced.
We continue to be confident in our growth opportunities and ability to generate strong cash flows.
By advancing our high return growth projects anchored in the Marcellus and Permian basin, along with our focus on cost and portfolio optimization, we expect to grow our cash flows, allowing us to continue to reinvest in the business and return capital to unitholders.
Now, let me turn the call back over to Christina Thanks, Mike 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 we will now open the call to questions Sheila.
Thank you.
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Our first question comes from Brian Reynolds with UBS. Your line is open.
Hi, good morning, everyone.
Fundamentals out of the Permian continues to be really strong and was just curious if you could provide a little bit more detail on the bangle pipeline expansion.
It's really driven by you know growth on MPLX is a dedicated acreage and curious about you know further potential expansion or extension opportunities on the Bengal pipeline in the future. Thanks.
Yeah, Good morning, Brian I'll start off and I'll, let Dave take in there.
We've been trying to tell the market that you know are our main basins Marcellus Permian is where we're concentrating a lot of our capital efforts.
The announcement today of continuing to add processing plant and as your question around Bangle just for.
Rather solidifies, where we've been putting a lot of our emphasis so let me, let David give you a little bit more color on dangled specifically.
Hey, Brian So let me start off just by a little background of course, you know, we're 25% owner in existing a bangle system and that was brought on service in our Q4 2021, and we've been very happy with that capital efficient projects I'll start that this foundation.
And as we look at the expansion is really anchored by what you touched on.
Our growth and also just the overall Permian growth and so the our expansion of bangle at 200 a day.
It's kind of a two pronged it's the installation of additional pumping capacity on the existing mainline and then also a construction of a new pipe on the southern section. So those together is what we're referring to is the expansion project and as John .
Noted that project are currently is projected to be a complete the first half of 2025.
Looking beyond 2025.
Should the supply and demand dynamics remained strong in the Permian.
The bank partners are in a position, including ourselves to consider additional expansions of pipe and.
And last comment I want to make is just to reinforce a note that John stated is that are we currently anticipate financing. This bangle project that our debt level three.
Through the JV and therefore you.
That will not be reflected in our capital outlook going forward. So just a couple of points there. Thanks.
Great I appreciate all that color and then maybe to pivot to our capital allocation and I. Appreciate the color in the prepared remarks, but just kind of curious just given that we're approaching the <unk> distribution.
Potential raise that we've seen in prior years and given mplx's preference for the DP raise of or buybacks from the last few calls I'm curious if you could just perhaps talk about an optimized capital structure at MPLX, just given that leverage is starting to trend below three and a half.
Hey morning, Brian It's John Thanks for the question, Yeah, I mean, I think as we've said we've been focused on the distribution is our primary return of capital tool, we'll look at that in the second half of the year like we did last November .
Certainly we were coming from a position of strength right, our strong balance sheet leverage around three and a half distribution coverage, one seven and $750 million of cash on the balance sheet really gives us that flexibility to work to optimize capital return again focused on the distribution.
As that tool as we think about where we want leverage sorry coverage to go but very comfortable with where we are we did a 10% increase last year and our coverage has actually gone up.
So I think in a strong position and maybe one other thing too I mean, certainly we haven't done any buybacks in the last two quarters, but it does still remain a tool for US again, we try and be trying to optimize in that area as well.
In opportunistic with those repurchases, but as I'm sure you and others have seen.
The units the volatility of units is almost moved so nothing which is maybe remove some of those opportunities for us recently, but still remains a tool for us and Mike I don't know if you wanted to add no. Good.
Yeah.
Hopefully that answers your question Brian .
That's it I appreciate all the color and enjoy the rest of your <unk>.
Thanks.
Thank you next we'll hear from Keith Stanley with Wolfe Research you May proceed.
Hi, good morning, Thank you.
If I can just follow on the last question on capital return to start.
Obviously, you haven't done the buybacks in the first half of the year you did a lot last year to $500 million.
How are you thinking about total capital return in and prospects for growing total return of capital to unitholders, just because buybacks are going down should.
Should we think distribution growth can kind of offset that and make up for it. So you have growing total return of capital.
Just overall thoughts on that value proposition.
And Keith It's Mike, Let me start and I'll pick up where John left off in the in the last answer and try and give you a little bit more color.
So I color code, our cash flows and I use red and blue as the examples.
Red cash flows or cash flows that we don't count on a continuing basis, but their source of equity.
Blue cash flows are those that we think that are they're continually.
Ongoing in time.
And what we typically think about is as a general rule not that you can apply both but red cash flows or our buybacks and blue cash flows support the distribution, we can use blue for buybacks, but just as a general rule I think about it that way.
As John mentioned, we have a decent amount of cash on the balance sheet, mainly because in the last two quarters our.
Volatility has changed quite a bit I don't know that we have a good reason for that but prior to that we were buying back using red bar cash flows at a at a significantly lower number than where we trade on average in other words during the corner. We get these dips you know the capital markets given these dips that.
We had opportunistically.
So if you look back in time, we bought over $1 billion.
Of buybacks and we've averaged less than $30 and mainly because we've gotten these dips the volatility of the stock trades in such a way that we get these steps that we've acted on now in the last couple of quarters. We haven't had those dips the way we've seen in the past again I don't know exactly why that volatility has come out.
But as a result that cash is still sitting on the balance sheet. So we still have two sets of cash flows sitting on the balance sheet. Some that's still targeted for buybacks.
And some that's targeted for ongoing growth in the distribution.
As a matter of course, you know the main thing that we concentrate on is generating cash rate. Obviously, that's the name of the game here and I've said on a couple of other calls you know that we're trying to do you know mid single digits and if you look at our slides and it'll show you Theres a good chart in there that shows you our distributable cash flow over the last couple of years.
<unk> has averaged a little under 7%.
So the main focus for US is let's make sure we're growing the partnership growing those cash flows identifying the type of cash flows we see and then looking to implement a program that supports distribution growth long term, which we've said is our primary tool mainly because we're mainly growing blue cash flows.
When we get the read cash flows we look at those to supplement our program and be a little bit more opportunistic.
Now some investors have said hey, why don't you use blue for buybacks, that's still a tool as well as John used the analogy of these are all.
On our tool belt, and we'll continue to think about those so where we stand right today as I I don't want people to look at our results and read into it that we're not thinking about buybacks. We are but we've just been surprised that how the volatility has changed quite a bit in the last couple of quarters, So won't rethink that a little bit going forward.
<unk> in the meantime, as John mentioned, we still have that cash on the balance sheet. We are looking and we will talk to you next quarter about where we're going to go with distribution growth, but we're in a good position mainly driven by the fact that our concentration is growing the cash flows and then trying to optimize for as much value as we can.
I hope that helps.
Yes that is helpful time, the cash balance to that to the buyback activity.
Second unrelated question.
Just curious the company historically hasnt been a big acquirer of assets, but it does seem like we've seen asset prices come down in the market recently, and obviously you have a lot of financial flexibility. It's just any updated thoughts on how you're thinking about the potential ability to play a role in.
M&A.
Yeah, Keith it's something again, it's on the tool belt and something that Dave and the team continually look at we measured against our own internal organic growth projects and very often we find that we have a list of projects that we just think will get us a higher return compared to some of the opportunities out there.
But we're but we're looking we're always active in trying to manage that that process, whether it's inbound or something that we're thinking about.
But we are but we're comparing it against what we have internally you know I've said a couple of times recently that some of these smaller.
Maybe not flashy projects, they generate significantly higher returns.
Pretty large size MLP and to grow.
6% to 7% DCF CAGR requires us to get good returns on the projects. So I use the term strict capital discipline.
We try to as best we can you know looking at all of our opportunities and then put the capital to work to get US the best returns so.
It's something that's out there and we haven't seen something that we would like.
I will tell you we've been active in some processes, but we're also kind of disciplines as to what number and we're willing to do and what number we're willing to walk away from so I think that discipline serves us well and keeps us in a good position to.
To grow the partnership with good returns.
Thank you.
Now you're welcome Keith.
Our next question comes from Jeremy Tonet with Jpmorgan. Your line is open.
Hi, good morning.
Good morning, Jeremy.
Just wanted to pick up on a last comment you put out there the 6% to 7% DCF CAGR is that something that you see that business being able to achieve over some sustained period of time, realizing thats not a guidance number but just trying to dig into that comment a little bit more.
Yeah, Jeremy I've said it a couple of times and thank you for saying it it's not meant to be guidance. It's just meant to be what we see as far as our capital spend that we think is appropriate for us the size of our current EBITDA and DCF that you know mid single digit growth.
Kind of fits what I think is our financial model. So as we sit down as a team and talk about our plans for next year and in next three years in the next five years I kind of think about where we're going to be as far as you know growing our cash flows et cetera et cetera. So.
It's not meant to be guidance and I've said that a couple of calls ago, but I just kind of point to like I said, if you look at our slide and John mentioned this our business can be stair step he as opposed to continuous because you bring up plan on here or there are startup pipeline up here or there. So if you actually look at our slide it'll show you that.
We had 6% then we had about 10 and then we had about four and if you look over the timeframe.
CAGR was a little under seven so year to date. This year, we're about 6% DCF growth and that's kind of for the size. We are for the capital that I think we want to execute it kind of puts me in that in that realm, and that's why I think we've been showing hopefully the market's been seen very steady cash flows.
More importantly, growing cash flows.
Some concern if you go back a couple of years with Covid on the stability of cash flows and I think we've shown that even through 2020, but more importantly, I hope the market is picking up that work.
Being really thoughtful as to our capital investments and we're growing the partnership and then we get to the topic that you know Keith just recently asked after growing the cash which is the priority and then optimizing.
How do we how do we invest and how do we return so I continually say these businesses are both a return on and a return of capital business and we're trying to concentrate on on doing well in both areas.
Got it that's very helpful. There and just wanted to pick up on another comment you said there.
With regards to Capex deployment, just wondering any thoughts you might be able to share with regards to what type of capacity on an annual basis, you see MPLX, having to deploy growth capital.
Then on the episodic yes.
Given the assets as they sit right now what type of opportunity set do you see that do you see it matching there or is there interest in kind of expanding in other platforms to.
Create new growth initiatives.
Yeah, Jeremy it's a good question and in our capital allocation framework, we clearly identify return on to be a higher priority than return of we are looking to grow the cash flows and we are looking to invest right now we've been kind of in a pattern such that we're generating $5 billion.
Distributable cash flow, but we're investing capital such that we have about $1 billion of free cash flow beyond that and that's that serves us well.
But to your point, it's not limiting us if we see more investment that we like.
We're happy to do that and that's countered by this concept of being strict on capital discipline, making sure. We get good returns I think it's really important in this space to show the market that when we invest capital that we're going to get good returns on it and if we continue that track record than I think people will support the equity.
In the short term, that's about where we've ended up.
But to the question that was asked earlier, we are open and we.
Constantly debating what's the right level and what are the right projects and and where do we think we should deploy.
The money that's owned by the owners.
And to the extent that we feel good about it we've ended up with this you know roughly about $1 billion of capital investment.
Roughly and and that's left us with about $1 billion of free cash flow. So we've kind of been in that mode recently, we're comfortable with it but.
But we also have flexibility around it as well if that makes sense to you.
Got it that is very helpful. Thank you for that.
Oh, you're welcome Jeremy.
Thank you again.
Again, if you would like to ask a question at this time you can press star one and record your name when prompted our next question will come from Theresa Chen with Barclays. Your line is open.
Good morning.
Touch.
John's comment earlier about the level of distribution increase.
From a backward looking perspective, John it sounds like the 10% last year with coverage filling up with maybe too low.
As we think about the third quarter or this year and beyond especially arguably you have more and more blue cash flow closely.
Online.
Based on fee based contracts physical volume growth should we think about that 10% that's more of a floor.
That's the definition of a champagne problem Theresa, but I'm not so thanks for the question, but I don't know if I think about it as the floor again, we try and be cognizant of where we are again, Mike talks about red and Blue We think about the blue we think about the capital we want to put to work.
We can look at that and say how do we kind of fill that into kind of a self funding model, even though we've got the right project, we could go and finance it, but certainly where the balance sheet is now it's not really a question.
I think we're trying to be prudent.
Around the increase in how we think about the percentage certainly that percentage last year versus our peers was very different again, some peers had cut and they're kind of getting their distributions back to where they were we did.
We havent cut our distribution.
So I'd think about it more around the framework of the Blue Blue bar cash we have how do we almost a glide path to our ultimate growth rate.
Of where the partnership is going to be because to some degree what we've done here is how we manage through Covid continue to grow the partnership we were driving Blue bar cash flows and essentially drove our coverage up.
So now we're thinking about alright, we're comfortable with the business confidence in those cash flows how do we work those cash flows into the distribution.
And ultimately over time.
The line that with the growth rate of the partnership so I don't know that I would say, it's a floor, but certainly a marker for what we did last year hopefully that helps a little.
Thank you.
On the topic.
Low carbon technology would you provide some color on how you're thinking about potential participation.
What are the paths.
Pathways and relate the likelihood of commercialization or in hydrogen tcf hubs within your footprint.
Hey.
Yeah Theresa this is Dave let me touch on that for you. So.
Ourselves MPLX along with MPC. We've been we are involved right now on three of the hydrogen hubs out there three of the 33 that have made it to the finals.
So middle for funding phase so.
And those projects are.
Our unique and niche of their own as far as level of the level of investment. So those are in the final commitment phase we anticipate getting final response from the <unk> at the end of this year.
And I think I wanted to go back to the.
The comments that both Mike and John touched on so while we're involved in these a lot of its dependent on dewi funny, but it's all back to strict capital discipline as we look at.
The emerging.
Energy evolution emerging technologies carbon capture hydrogen.
We're excited about it as part of our strategy going forward, but it is with the backdrop of an.
Ensuring that the money we're investing.
<unk> the rates of returns that we're targeting so.
More to come on that and I think as a.
<unk> makes their final decisions.
On the on their grants and their funding at the end of this year, we will have some more updates on it.
I'm curious since Mike I, just wanted to add one of the benefits. We have is our footprint and as Dave mentioned.
We're active in at least three of those hubs right now so that we can participate in the discussion whether it's on the Gulf coast or up in Marcellus or in the Bakken or wherever it is you know our footprint allows us to have these opportunities.
And so the question I was asked earlier in one of the advantages of having this wide footprint and the connectivity that we have is.
Our organic choices are strong which gives us the ability to you know.
Forego, having to do something else because our plate has enough activity on it and it gives us a good enough return so.
I think one of the strengths. We have is the breadth of our portfolio and we're always trying to figure out how to optimize that and where we think we can benefit by being stronger as you heard today.
<unk> some more capital in the Permian, we've been very open about that as an area of concentration for us and we put a lot of effort. There so continuing to grow our footprint in that area should not be a surprise to anybody but to your question on low carbon we are looking a lot at different things and as Dave mentioned, but we are coming back to it's got to show.
A return that makes sense to us if we're going to deploy capital.
Hopefully that helps as well.
It does thank you.
Now you're welcome Teresa.
And our last question will come from Neal Dingmann with Truest. Your line is open.
Good morning, guys. Thanks for getting me in my question first is just on the potential non core divestitures I think separately.
You all mentioned in the past how do you look to potentially shed some of the non core terminal disorder G&P utility lines I'm, just wondering what's the magnitude of potential sales, we still could expect going forward.
Hey, Neil it's John Thanks for the question Yeah. As you note we've had some assets here and there smaller ones on probably the both the illness in G&P side of the shop that we have been able to.
Find other owners for.
I think when.
Comment on that and we continue to look at that right around all of our assets. If they don't make sense in our hands do they make sense and others I would say the large majority of those assets on the <unk> side, we know our customer MPC and.
We know how critical those are to their operations on the G&P side, we talked from time to time about some of the basins. We're in which are much smaller than our presence say in the Marcellus, which is really the largest part of our G&P operations look those are generating free cash flow but.
We're maybe not looking to significantly invest in those so if there's someone that maybe that fits better in their portfolio, we would we would listen.
Again, theres been a little bit of.
The gap between the bid and the ask there and given they're not kind of a burning platform for us we haven't.
<unk> had significant urgency to do something there, but something we'll always look at.
Yeah that makes sense and then just my last one is on the crude pipeline growth you. All mentioned volumes I think you said are up 4%, partly due to the Debottlenecking and I'm just wondering.
Can this growth continue as maybe there's future opportunities youre looking at.
Okay.
Hey, Neil this is Sean.
We're pleased where we are right now with the crude pipelines growth.
And it's really driven by the high refinery utilization, but we continue to look for organic projects that unlock.
Debottlenecking increased capacity. So we will continue doing that as Mike and John said as we look forward in future capital outlays.
Again really to match the refineries and the needs of our customers that are connected to a crude pipeline. So.
Again, we're pleased at where we're at and we'll continue looking for those organic growth opportunities.
Great. Thank you also to tell.
Yes.
Okay.
Youre welcome.
Alright Sheila.
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We are showing no further questions at this time.
Sounds great. Thank you so much for joining us today and thank you for your interest in MPLX should you have additional questions or would you like clarification on any of the topics discussed today members of the Investor Relations team will be here today to help out and take your call.
Thank you that does conclude today's conference. Thank you once again for your participation you may disconnect at this time.