MPLX LP (NYSE:MPLX) Q3 2023 Earnings Call Transcript

MPLX LP (NYSE:MPLX) Q3 2023 Earnings Call Transcript October 31, 2023

MPLX LP beats earnings expectations. Reported EPS is $0.927, expectations were $0.91.

Operator: Welcome to the MPLX Third Quarter 2023 Earnings Call. My name is Sheila, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Kristina Kazarian. Kristina, you may begin.

Kristina Kazarian: Thank you, Sheila. Good morning, and welcome to the MPLX third quarter 2023 earnings conference call. The slides that accompany this call can be found on our website at mplx.com under the Investors tab. Joining me on the call today are Mike Hennigan, Chairman and CEO; John Quaid, CFO; and other members of the executive team. We invite you to read the safe harbor statements and non-GAAP disclaimer on Slide 2. It's a reminder that we'll 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 the call over to Mike.

The sun rising over a sprawling network of oil & gas pipelines near Midland, Texas.

Michael Hennigan: Thanks, Kristina. Good morning, everyone. Thank you for joining our call. Earlier today, we reported third quarter adjusted EBITDA of $1.6 billion and distributable cash flow of $1.4 billion, each set a new quarterly record for MPLX with both increasing over 8% year-over-year. Our L&S business set a new record for crude pipeline throughput and saw strong terminal throughputs, demonstrating the value of our relationship with MPC. In our G&P business, we saw record throughput in our processing and fractionation operations driven mainly by our assets in the Permian and Marcellus basins. Our long-term production outlook for our G&P producer customers in our key basins remains largely unchanged. In our largest basin, the Marcellus, the cost to develop remains at the low end of the cost curve and still below current commodity prices, we expect to see maintenance level drilling activity continue.

While in the Permian, crude prices remained strong and prices for associated gas do not significantly impact producer activity. Our integrated footprint in these basins position the partnership with a steady source of growth opportunities. For the second year in a row, based on the strength and continued growth of our cash flows, last week, we announced a 10% increase in the partnership's distribution, which now stands at $3.40 per unit on an annualized basis. We're committed to returning capital to unitholders and expect our distribution to be the primary return of capital tool supplemented with opportunistic repurchases. We are well positioned to optimize return of capital given the strength of the business and our balance sheet. Our position on MPLX and its structure is unchanged.

MPLX is a strategic investment for MPC, which now expects to receive $2.2 billion in annual cash flows via the distribution. MPC believes that its current capital allocation priorities are optimal for its shareholders and MPC does not plan to roll up MPLX. We remain confident in our ability to grow the partnership and our focus on 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 continued growth of MPLX's cash flows. Now let me turn the call over to John to discuss our growth as well as our operational and financial results for the quarter.

John Quaid: Thanks, Mike. As you can see on Slide 5, MPLX has a strong history of growing its cash flows by executing the strategic priorities Mike just highlighted. Looking back over the last 3 years, you can see that our growth comes in stair steps as we develop and bring projects online. And through the first 9 months of this year, distributable cash flow has grown over 6% versus the prior year. We are progressing our 2023 capital program, which remains forecasted at $950 million, including $800 million of growth capital and $150 million of maintenance capital. In the L&S segment, our joint venture natural gas, crude and NGL pipeline projects in the Permian are progressing. Whistler's expansion, the 2.5 billion cubic feet per day was completed at the end of the third quarter, and we're seeing strong demand for the natural gas pipeline.

Construction is progressing on the associated Agua Dulce Corpus Christi Pipeline lateral, which is expected to be in service in the third quarter of 2024. On the Wink to Webster crude pipeline, we expect volumes to ramp over the next 2 years as the pipeline continues to play segments into service. Turning to our participation in the NGL value chain. We are progressing the expansion of the BANGL pipeline to about 200,000 barrels per day, which is expected to be completed in the first half of 2025. The capital-efficient expansion of this long-haul pipeline is supported by existing and growing demand for NGL takeaway from the Permian's Delaware and Midland Basins to the fractionation hub in Sweeny, Texas. All of these projects are largely financed at the JV level, and therefore, our portion of the JV 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 in response to producer demand. We are bringing online new gas processing plants in the Permian Delaware Basin to meet increasing demand while targeting strong returns with strict capital discipline. We're progressing construction of Preakness II, which we expect to be online in the first half of 2024. And announced last quarter, we would be building our seventh gas processing plant in the basin Secretariat, which is expected to be online in the second half of 2025. Once operational, these plants will bring our total processing capacity in the Delaware Basin up to 1.4 Bcf per day. In the Marcellus Basin, we are also advancing construction of the Harmon Creek II gas processing plant, which we expect will be online in the first half of 2024.

Slide 6 outlines the third quarter operational and financial performance highlights for our Logistics & Storage segment. The L&S segment reported its third consecutive quarter with $1 billion of adjusted EBITDA. L&S segment adjusted EBITDA increased $122 million when compared to third quarter '22, primarily driven by higher rates and throughputs, including growth from equity affiliates. Third quarter 2023 segment adjusted EBITDA excludes Garyville incident response cost of $63 million. Crude pipeline volumes were up 9% and represent a new quarterly record for the partnership as we grew crude oil throughputs through expansion and debottlenecking activities. Product pipeline volumes were down 9%, driven by less favorable market dynamics and effects from Marathon's refinery downtime.

Terminal volumes were up 7% due to higher customer demand, including effects from Marathon's refinery turnarounds in both quarters. Looking ahead to the fourth quarter, we do expect some headwinds of approximately $30 million to $40 million to sequential L&S segment results from lower throughput volumes as a result of MPC's planned turnaround activity, as well as higher operating expenses due to the timing of maintenance projects. Moving to our Gathering & Processing segment on Slide 7. G&P segment adjusted EBITDA increased $3 million compared to third quarter 2022 as the benefits of higher volumes and throughput fees were offset by lower NGL prices. While our G&P segment is largely a fee-based business, we do have some direct sensitivity to natural gas liquids prices.

For the quarter, NGL prices averaged $0.68 per gallon as compared to $1.01 in the third quarter of 2022, resulting in a $32 million unfavorable effect. Total gathered volumes were up 3% year-over-year due to increased production in the Permian and the Marcellus. Processing volumes were up 5% 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 operations, we saw year-over-year volume increases of 4% for gathering and 5% for processing, driven by increased customer demand and fractionation volumes grew 10%, primarily due to increases to our fractionation capacity to meet in-basin demand for ethane.

Moving to our third quarter financial highlights on Slide 8. Total adjusted EBITDA of $1.6 billion and distributable cash flow of $1.4 billion increased 8.5% and 8.6%, respectively, from the prior year. As Mike discussed, based on our confidence in the continued growth of our cash flows, we increased the base distribution 10% to $0.85 per common unit while maintaining strong coverage of 1.6 times. We are committed to returning capital to unitholders and year-to-date we have returned $2.4 billion through our distributions. Our capital allocation framework remains unchanged, and we continue to expect the distribution will be our primary tool to return capital. Opportunistic repurchases of units held by the public also remain a tool to supplement capital returns.

The growth of our cash flows and our strong balance sheet, including a quarter end cash balance of $960 million and leverage of 3.4 times, provides us with financial flexibility to optimize capital allocation. Now let me hand it back to Mike for some final thoughts.

Michael Hennigan: Thanks, John. In closing, the growth of our cash flows continues to enable us to invest in and grow the business while supporting our commitment to return capital to unitholders. We continue to expect our distribution to be the primary return of capital tool. And with the recently announced 10% increase to the partnership's base distribution, MPC now receives $2.2 billion annually from MPLX's distributions, illustrating its strategic value as part of MPC's portfolio. As MPLX pursues its growth opportunities, we believe the value of this strategic relationship will continue to be enhanced. We are 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 Basins, along with our focus on cost and portfolio optimization, we intend to grow our cash flows, allowing us to reinvest in the business and return capital to unitholders.

Now let me turn the call back over to Kristina.

Kristina Kazarian: 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. And with that, Sheila, we're ready for the questions today.

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