Yahoo Finance MPLX LP (NYSE:MPLX) Q4 2023 Earnings Call Transcript
MPLX LP (NYSE:MPLX) Q4 2023 Earnings Call Transcript January 30, 2024
MPLX LP beats earnings expectations. Reported EPS is $1.1, expectations were $0.95. MPLX LP isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Welcome to the MPLX Fourth 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. Good morning, and welcome to MPLX's fourth quarter 2023 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; Kris Hagedorn, CFO. Also with us is John Quaid, as our CFOs transition into their new roles 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 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 the call over to Mike.
Mike Hennigan: Thanks, Kristina. Good morning, everyone. Thank you for joining our call. I'd like to acknowledge Kris Hagedorn, MPLX's new CFO joining our call. We look forward to Kris' financial leadership having served in various roles in the midstream sector, previously being the Controller of MPLX and most recently, Controller of MPC. 2023 was a strong year as we successfully executed our strategic priorities. Full year adjusted EBITDA was $6.3 billion. Distributable cash flow was $5.3 billion and adjusted free cash flow was $4.1 billion. Our results reflect the continued growth of the partnership and its cash flows in our L&S segment, strong operational performance and customer demand drove record pipeline throughput, and strong growth in terminal throughput demonstrating the value of our relationship with MPC.
In our G&P segment, we saw record throughput in our gathering, processing and fractionation operations driven mainly by our assets in the Marcellus and Permian basins. Our focus on cost management, strong operational performance and growth from recent capital investments resulted in adjusted EBITDA growth of nearly 9%, and DCF growth of over 7% for the year. In line with our commitment to return capital, the growth of MPLX's cash flow supported the return of $3.3 billion to unit holders through distributions. We've increased our quarterly distribution 10% each of the last two years, which now stands at $3.40 per unit on an annualized basis, and we still have strong distribution coverage of 1.6x. Turning to the macro, the United States continues to be a low cost producer of energy fuels needed across the globe.
Our expectations on the long-term production outlook in our key basins are unchanged. We expect strong demand for hydrocarbons will support growth across our asset footprint. In our largest basin the Marcellus, the cost to develop is at the low end of the cost curve and below current commodity prices. In the fourth quarter, process utilization reached 96%, and we expect producer drilling activity to support continued volume growth in the Marcellus. We've seen similar growth rates in the Utica, where processing utilization increase 10% year-over-year. Both basins are seeing wells with longer laterals, which are resulting in higher volumes, highlighting the strength and opportunities we see in our Northeast footprint. In the Permian Basin, crew prices remain attractive and associated gas production continues to grow as producers execute drilling and completion activities.
As part of our Permian growth strategy, we acquired the remaining interest of a gathering and processing joint venture in the Delaware Basin for approximately $270 million at an attractive multiple. This acquisition illustrates our ability to grow the cash flow of the partnership through the lens of strict capital discipline. We're confident in our ability to grow the partnership and are focused 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 growth of MPLX's cash flows. Turning to our capital plan. Today, we announced a capital expenditure outlook of $1.1 billion for 2024. Our plan includes $950 million of growth capital and $150 million of maintenance capital.
We remain committed to capital discipline and our 2024 growth capital outlook is anchored in the Marcellus and Permian basins. Our integrative footprints in these basins have positioned the partnership with a steady source of opportunities to expand our value chains, particularly around natural gas and NGL assets. We plan to continue growing these operations through organic projects, investment in our Permian joint ventures, and bold on opportunities. In the L&S segment, construction is progressing on the Whistler, Agua Dulce to Corpus Christi or ADCC natural gas pipeline, which is expected to be in service in the third quarter of 2024. We're also progressing the expansion of the BANGL joint venture NGL pipeline to approximately 200,000 barrels per day, which is expected to be completed in the first half of 2025.
These projects are largely financed at the JV level. Therefore, our portion of the JV finance capital spending is not reflected in our capital outlook. In G&P segment, we're bringing new gas processing plans online to meet increasing customer demand. In the Marcellus Basin, we advance construction of the Harmon Creek II gas processing plan, which is expected to be online at the end of the first quarter. Similarly, in the Permian Basin, we progress construction of Preakness II, which is expected to be online early in the second quarter. Additionally, we are building our seventh gas processing plant in the basin secretariat, which is expected to be online in the second half of 2025. Once operational, our total processing capacity in the Delaware Basin will be approximately 1.4 billion cubic feet per day.
Outside of these strategic basins, the remainder of our capital plan is mostly comprised of smaller high return investments, targeted at expansion or the bottlenecking of existing assets and projects related to expected increased producer activity. While our capital outlook is primarily focused on our L&S and G&P footprint, we will evaluate low carbon opportunities to leverage technologies that are complimentary with our asset footprint to create a competitive advantage. Moving to capital allocation, we're optimistic about our opportunities in 2024. First, maintenance capital. We are steadfast in our commitment to safely operate our assets, protect the health and safety of our employees, and support the communities we operate in. Second, we're focused on delivering a secure distribution and expect this will remain our primary return of capital tool.
Third, we'll invest to grow the business. This is both a return-on and a return-off capital business. As we look at 2024, our priority is to invest to grow the business at superior returns. After these priorities, we'll assess the opportunistic return of capital to unit holders. Recent industry consolidation has not changed our perspectives on the structure of MPLX. MPLX is a strategic investment for MPC, and MPC does not plan the role of the partnership. Now let me turn the call over to Kris to discuss our operational and financial results for the quarter.
Kris Hagedorn: Thanks, Mike. Slide 7 outlines the fourth quarter operational and financial performance highlights for our logistics and storage segment. The L&S segment reported its fourth consecutive quarter of $1 billion adjusted EBITDA. Adjusted EBITDA increased $110 million when compared to the fourth quarter of 2022, primarily driven by higher rates and throughputs, including growth from equity affiliates. Proof pipeline volumes were up 4%, primarily because of refinery maintenance schedules in the prior year, product pipeline volumes and terminal volumes were flat. Moving to our gathering and processing segment on Slide 8. The G&P segment adjusted EBITDA increased $59 million compared to fourth quarter 2022. This was driven by higher gathering and processing volumes.
Total gathered volumes were up 1% year-over-year, primarily due to increased production in the Marcellus in the Southwest. Processing volumes were up 9% year-over-year, primarily from higher volumes in the Marcellus and the Utica driven by increased customer demand. Focusing in on the Marcellus, by far our largest basin of G&P operations, we saw year-over-year volume increases of 10% for gathering, and 9% for processing, driven by increased drilling and production growth. Marcellus' processing utilization reached 96% in the fourth quarter. Illustrating the need for our Harmon Creek II facility, fractionation volumes grew 1% due to higher processed volumes, which were offset by lower Ethan recoveries. Moving to our fourth quarter financial highlights on Slide 9, total adjusted EBITDA of $1.6 billion and distributable cash flow of $1.4 billion increased 12% and 9% respectively from prior year.
Turning to our balance sheet on Slide 10. Growth of our cash flows has continued to reduce MPLX leverage, which now stands at 3.3x. We believe the stability of our cash flows supports leverage in the range of 4x. And while MPLX has just over $1 billion of notes maturing later this year, we currently do not expect to structurally lower our debt. When evaluating the short-term maturity, we'll consider all opportunities available to us to optimize our cost of debt. MPLX's strong balance sheet, including a year-end cash balance of $1 billion, plus the ability to utilize the intercompany facility within MPC provides us with financial flexibility to invest in the business and optimize capital allocation. Now let me hand it back to Mike for some final thoughts.
Mike Hennigan : Thanks, Kris. In closing, MPLX is a strong history of growing the partnerships cash flows by executing strategic priorities, all while maintaining strict capital discipline. We continue to aim for mid-single-digit growth rate over multiple year periods. It's what we believe is appropriate to aim for, given our commitment to capital discipline and the size of our partnership within our capital allocation framework. But this should not be interpreted as annual guidance. And as you can see in our results, we've achieved this growth in adjusted EBITDA and DCF. By deploying capital wisely, controlling our costs and optimizing operations to get the most out of our assets, we have grown DCF by 7.1% on a four year compound annual basis.
Our growth tends to come in stair steps as we develop and bring projects online. And this disciplined approach to growing cash flows creates financial flexibility and underpins our commitment to returning capital to unit holders. We've increased our quarterly distribution 10% each of the last two years and the business continues to generate free cash flow after distributions of over $800 million annually. So we believe, we're in a strong position to continue to consistently grow our distributions. MPLX is a strategic investment for MPC and as MPLX pursues its growth opportunities, the value of this strategic relationship will be enhanced. We're confident in our growth opportunities and ability to generate strong cash flows. In 2023, we saw total unit holder return of 22%, underpinned by annual adjusted EBITDA growth of nearly 9% and DCF growth of 7%.
In fact, we have grown EBITDA by nearly $1.2 billion over the last four years and have over 7% DCF growth CAGR over the same timeframe. By advancing our high return growth projects anchored into 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 continue to return capital to unit holders. 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. With that, we'll now open the call to questions.
Operator: [Operator Instructions] Our first question will come from John Mackay with Goldman Sachs.
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