MPLX LP (MPLX) 2012 Q4 法說會逐字稿

Welcome to the MPLX Corporation Fourth Quarter 2012 Earnings Conference Call. My name is Larissa and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question and answer session. Please note that this conference is being recorded. I'll now turn the call over to Pam Beall. Please go ahead.

Thanks, Larissa, and welcome to the MPLX Inaugural Fourth Quarter 2012 Earnings Webcast and Conference Call. The synchronized slides that accompany this call can be found on our MPLX website. On the call today are Gary Heminger, Chairman and CEO; Garry Peiffer, President of MPLX; and Don Templin, Chief Financial Officer. Turn to slide 2, please read the Safe Harbor statement. It is a reminder that we will be making forward-looking statements during the presentation and during the question and answer session.

Actual results may differ materially from what we expect today. Factors that could cause actual results to differ are included here, as well as in our filings with the Securities and Exchange Commission. I'll now turn the call over to Gary Heminger for opening remarks.

Thanks, Pam, and good afternoon and thank you for joining us today for the first earnings conference call for MPLX. Please turn to slide 3. On October 26, we announced the final terms of the IPO of MPLX, so we are just beginning our first full quarter as a new public entity. We believe we have created a premier MLP, one that has some very attractive features for MLP investors. MPLX is a fee-based business with stable cash flows and multiple avenues to grow earnings and distributions over an extended period of time. MPLX is sponsored by an invested grade parent, Marathon Petroleum Corporation, with a significant and growing portfolio of logistics assets that could be acquired by MPLX in the future. MPLX assets are integral to MPC's integrated logistics and marketing system, providing MPC's refineries access to foreign, Canadian, and domestic crude sources and finished products to its wholesale and retail marketing consumers.

The growing production of crude oil and natural gas liquids and changing supply patterns create opportunities for MPLX to play a vital role in the fast-changing energy landscape. MPC intends for MPLX to be its primary vehicle to own, operate, and grow its midstream business. Additionally, MPC has a large portfolio of MLP-qualifying assets including the 49% retained interest in MPLX's initial pipeline assets that can be offered to MPLX over time to help us achieve our desired annual distribution growth rate. An example of the growing portfolio of MPC logistics assets are those related logistics assets including three NGL pipelines and four light product storage terminals embedded in the acquisition of BP's assets in the Western Gulf. That acquisition is targeted to close on Friday, February 1.

An additional example is MPC's recent agreement to be the anchor shipper on the proposed 300,000-barrel per day southern access extension pipeline from Flanagan, Illinois, near Chicago to Patoka, Illinois, for which MPC will have an option to acquire a 25% equity interest. Over 70% of MPLX's 2013 estimated revenue is expected to be generated through firm commitment, fee-based transportation and storage agreement with MPC. Growth in cash flows are expected to come from annual increases in FERC-based transportation rates, drop-downs, and organic expansion projects within our own current geographic footprint or in new areas of the country. In addition, we may pursue the acquisitions either independently or cooperatively with MPC.

MPLX is well-capitalized with a $500 million undrawn revolving credit facility and minimal current debt. To foster organic growth, MPLX retained $192 million of IPO proceeds to pre-fund identified organic capital spending projects over the next two years. The majority of this capital will be allocated to an expansion and upgrade project of the Patoka, Illinois to Catlettsburg, Kentucky crude oil pipeline. MPLX will also have significant opportunities to grow third-party business that it can evaluate independently or in cooperation with MPC. An example of these opportunities is a letter of intent that MPC recently signed with Harvest Pipeline Company to jointly develop infrastructure that will facilitate transportation on the Ohio River of hydrocarbon liquids production from Utica Shale in Eastern Ohio and Western Pennsylvania.

Marathon Pipeline has signed an agreement with Marathon Oil Corporation to extend the operating agreement associated with MOC's Red Butte Pipeline. The term extends MPL's operatorship to December 31, 2018; five years beyond the current term that expires at year end 2013. The extension allows the continuation of this third-party business operating the Red Butte system and we look forward to continuing to expand our third-party business. In our business, we regard health and safety as core values. When our operations are safe and our people healthy, we know our results will be much better.

That certainly has held true as MPC employees and contractors helped us achieve our best ever safety performance in 2012 an accomplishment of which we can all be proud. We are enthusiastic about the prospects for MPLX. We announced our first distribution on January 25, prorated for the post-IPO period commencing October 31, 2012. The announced distribution of $0.1769 per unit for this abbreviated period is equivalent to the $0.2625 minimum quarterly distribution disclosed in our prospectus. As I said, we have multiple avenues to achieve our desired growth in distributable cash flow and we look forward to updating you each quarter with our growth prospects. Now I will turn the call over to Don Templin to provide a more detailed update on the financial results for the post-IPO period in the fourth quarter.

Thanks, Gary. Due to significant differences in the assets and tariff structure included in the historical financial statements compared to the post-IPO MPLX, I will be focusing my comments on MPLX's results on a post-IPO basis. Net income, adjusted EBITDA, and distributable cash flow will be discussed for the period October 31, through December 31, 2012. MPLX revenues and other income for the post-IPO period was $83.6 million, driven primarily by total pipeline throughput of nearly 2.1 million barrels per day. Marathon Petroleum Corporation and related parties accounted for approximately 87% of those revenues, which included revenues attributable to volumes shipped by MPC under joint tariffs with third parties that are treated as third-party revenue for accounting purposes. After deducting the 49% interest retained by MPC, adjusted EBITDA attributable to MPLX for the post-IPO period was $18.2 million. The financial results for the post-IPO period were consistent with our expectations.

Turning to slide 5, distributable cash flow for the post-IPO period was $16.7 million. As Gary mentioned, our Board declared our first cash distribution of $0.1769 per unit, which was prorated for the post-IPO period. The total cash distribution for the post-IPO period will be $13.3 million and represents a coverage ratio of 1.25 times. As indicated in the prospectus, we plan to target an annual coverage ratio of 1.1 times. However, we do not necessarily expect to achieve a 1.1 times coverage ratio each quarter, due to the seasonality in some of our spending. Slide 6 shows that at the end of the fourth quarter, we had $216.7 million of cash, primarily to pre-fund $177.6 million of planned capital projects. The partnership also had access to a $500 million unused revolving credit facility to fund organic growth opportunities or acquisitions from MPC or from third parties.

With minimal debt, our consolidated total debt-to-consolidated EBITDA covenant ratio was close to zero at 0.1 times; well below the maximum allowed of 5 times. Turning to slide 7, our 2013 approved capital budget on 100% basis is $142 million. We estimate that our expansion capital expenditures will be approximately $109 million and they have been pre-funded with proceeds from the IPO. The remainder is maintenance capital. Approximately 72% of the expansion capital relates to the Patoka to Catlettsburg crude oil pipeline project. The Patoka to Catlettsburg crude oil pipeline is a 256,000-barrel per day capacity pipeline, which supplies crude to MPC's Catlettsburg refinery. This project, which is upgrading the pipeline to increase capacity and reliability, is scheduled to be complete in September 2014.

The current tariff on this system already contemplates this entire project. Southern access extension is the pipeline that Enbridge plans to build from Flanagan to Patoka, Illinois to bring Canadian and Bakken crudes into the Midwest refineries. MPLX will make investments associated with tying its Patoka tank farm into this new crude pipeline. The SCADA system is used by MPLX to remotely operate pipelines from the operations center here in Findlay, Ohio. This project has been ongoing and it will upgrade both the software and hardware of the system and will also establish a platform for future growth. The $33 million of maintenance capital expenditures relate primarily to safety and security expenditures and costs related to valve replacement and electrical system maintenance. Now, I will turn the call back to Pam Beall.

Thanks, Don. We'll just go ahead, Larissa, and open up the call for questions.

Thank you.

(Operator Instructions)

Jerren Holder, Barclays.

Given the large drop-down inventory you guys have and obviously, that's going to be a large growth driver for this MLP. How should we think about it as far as timing and size going forward?

Yes. This is Garry Peiffer. As you rightfully know, we believe we have a pretty good opportunity or a lot of opportunities for MPLX to grow. We've stated all along that we want to have a very competitive and attractive distribution growth rate, so really, the drop-downs that will occur really will be driven by what other ways we grow our distributions. Our primary growth rate is just the tariff revenues, which we will be able to grow over time, some organic type of projects that Don talked about in his remarks, as well as some other opportunities we have.

So to the extent that tariff increases and volume increases on our pipelines and capital expenditures don't achieve the type of distribution growth we want to achieve, then is we would consider a drop-down. I think if you look at a lot of other IPOs in the MLP space, that generally speaking, they've had their first drop in the 6 to 12 month period after their IPO. As you know about MPLX, we pretty much constructed this vehicle or this new entity to be right down the middle of the fairway in terms of other MLPs. I think we're going to continue to do everything we can to make sure that this is typical of a well-run, well-capitalized type of MLP.

Okay. Thank you. That's all.

(Operator Instructions)

Okay, Larisa. It looks like there aren't going to be many questions today. We'd just like to thank everyone for their interest in MPLX. Certainly, I'll be in the office this afternoon. If there are any follow-up questions, you can reach me at the corporate headquarters. Thanks, everyone, for joining us today.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.