MPLX LP (MPLX) 2013 Q1 法說會逐字稿

Welcome to the MPLX Corp.'s first quarter 2013 earnings conference call. My name is Trisha and I will be 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. Please note that this conference is being recorded.

I would now like to turn the call is over to Pam Beall. Please go ahead.

Thank you, Trisha, after good afternoon and welcome to the MPLX first quarter 2013 earnings webcast and conference call. The synchronized slides that accompany this call can be found on our MPLX website.

On the call today are Garry Peiffer, President of MPLX; and Don Templin, Chief Financial Officer. We ask that you please read the Safe Harbor statement slide 2. 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 and factors that could cause actual results to differ are included here as well as in our filings with the Securities and Exchange Commission.

Now I'll turn the call over to Garry Peiffer for opening remarks.

Good afternoon and thank you for joining us today for the first quarter earnings conference call for MPLX. Consistent with our expectations, MPLX reported solid financial results for the quarter that yielded $28 million of distributable cash flow.

As you probably know, this morning we announced that our Board of Directors declared a first-quarter distribution of $0.2725 or $1.09 per unit on an annualized basis. This represents an increase of $0.01 per unit above the minimum quarterly distribution.

We also announced earlier today our first acquisition since our IPO in October 2012. MPLX will acquire an additional 5% interest in MPLX Pipe Line Holdings LP from a subsidiary of Marathon Petroleum Corporation for $100 million. This transaction is expected to close on May 1 and be immediately accretive to distributable cash flow. We expect to fund the acquisition from cash on hand.

We believe this acquisition positions us to support distribution growth in the near term and is consistent with our intent to provide an attractive growth profile over the long term. This acquisition, completed so early in our existence as a public entity, in conjunction with the $0.01 per unit increase in the quarterly distribution, reflects the support of our sponsor, Marathon Petroleum Corporation, and its commitment to increasing value for MPLX unitholders.

As of March 31, 2013, MPLX had $227.9 million of cash, primarily consisting of amounts originally established to fund capital projects. We plan to use $100 million of this cash to purchase the 5% interest in MPLX Pipe Line Holdings LP on May 1. The partnership also has access to a $500 million unused revolving credit facility available to fund organic growth opportunities or acquisitions from MPC or from third parties.

We continue to be enthusiastic about the prospects for MPLX. We have multiple avenues to achieve our desire growth in distributable cash flow and we look forward to sharing those growth prospects with you as they develop.

Now I'll turn the call over to Don Templin to review the financial results for the quarter.

Thanks, Garry. As you will recall, the historical financial statements of MPLX prior to the IPO included the results of certain undivided pipeline interests that were not contributed to MPLX at the time of the IPO. In addition, certain of the tariffs were adjusted in connection with the IPO. As a result, there are a number of factors affecting the comparability of our pre-IPO financial statements and the current period's results. Given these differences, I thought it might be more helpful to focus my comments today on MPLX's actual first quarter 2013 results as compared to the projected results we had included in the prospectus that was prepared at the time of the IPO.

The waterfall chart on slide 4 compares the estimated first quarter 2013 net income shown in the prospectus to the first quarter of 2013 actual net income. The primary drivers for the decrease in our net income were lower throughput volumes on our pipelines offset by lower operating costs and higher tariff revenue.

While our crude and product pipeline throughputs were down during 2013 first quarter, minimum volume commitments from MPC allowed us to maintain a stable stream of cash flow to MPLX. Amounts related to these deficiency payments are included in distributable cash flow in the current profit, but are classified as deferred revenue for accounting purposes. Revenue related to these deficiency payments will be recognized in future periods either when the credits or they expire. The favorable cost variance of $6.5 million is primarily due to timing of projects.

Turning to slide 5, distributable cash flow for the first quarter 2013 was $28 million compared to the $25 million estimate included in the prospectus. While the MPC deficiency payments I just discussed don't enter into the determination of income immediately, they are considered in determining distributable cash flow for the quarter. As you can see on this slide, there was in addition of $4.6 million related to MPC deficiency payments in arriving at the $20 million of distributable cash flow for the 2013 first quarter.

Just as a reminder, the reverse will be true when the credits are either utilized or they expire. That is, there will be revenue and earnings recognition but no impact on distributable cash flow in the period.

As Garry mentioned, our Board declared a cash distribution of $0.2725 per unit, which represents a $0.01 per unit increase over our minimum quarterly distribution. The total cash distribution for the first quarter will be $20.5 million and represents a coverage ratio of 1.37 times. We plan to target an annual coverage ratio of approximately 1.1 times. However, we do not necessarily expect to achieve a 1.1 times coverage ratio each quarter, primarily due to the seasonality in some of our spending profile.

Slide 6 shows that at the end of the first quarter we had $227.9 million of cash, primarily consisting of proceeds from MPLX's initial public offering which were retained to pre-fund the capital projects. As Gary mentioned, we will use a portion of this cash to fund the purchase of the additional 5% equity interest in Pipe Line Holdings.

We also have 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 is close to 0 at 0.1 times, well below the maximum allowed at 5 times.

Now I'll turn the call back to Pam Beall.

Tricia, we are ready to open the call for questions.

(Operator instructions) Brian Zarahn, Barclays.

On the drop-down, can you talk a little about the thought process in terms of going with the 5% stake as well as the timing of it?

Sure. This is Garry again. I think, as you are well aware and as we have consistently said, both in the road show before the IPO as well as since, is we are structuring and targeting the annual cash distributions, distributable cash flow growth to be in the top quartile of the high-drop, high-growth type of peer group. And so when we look at the amount of volume increases we expect to generate, the amount of tariff revenues, organic growth, we just felt that this was the appropriate time and amount to drop in to achieve that type of annualized growth rate.

So really, this is one of the levers that we are fortunate to have at MPLX to allow us to essentially zero in on a growth target that we are trying to achieve. This equity interest that we're able to drop allows us to go by percentage points to achieve a fairly precise drop. So it was really timing of the drop to achieve the growth targets for MPLX that we are trying to achieve over the long-term.

That's helpful. In terms of the remaining stake, are you thinking about perhaps following the strategy of smaller drops going forward? Or how do you think about the remaining stake in Pipe Line Holdings being dropped down to the MLP?

I think it's going to be based on our outlook and our results to that point in time. Really, like I said, we have a number of levers or a number of alternatives to grow MPLX in this top quartile type of top of range, and we will use this avenue or maybe other avenues, but at least at the moment, this is the most transparent and consistent way to grow the EBITDA, which translates into a higher annual distribution growth rate cash distribution for MPLX. So it's going to be dependent upon the time.

Thanks, Garry.

Jeffrey Birnbaum, UBS.

I was just wondering if there was any additional color that you guys could provide on why MPC didn't ship its MVC on certain pipes in the first quarter. What drove that? And what is the visibility in terms of when will those will actually be hit?

Well, as I think you are well aware, when we set up the transportation and storage agreements here last year that were effective October 1, most of those are 10-year agreements. So when we set them up, we tried to look over that entire 10-year period to give us the best estimate of what we thought on average we would be shipping over those lines over the next 10 years. So as you can imagine, there's seasonality as well as economics as well as growth over those 10 years that we were trying to incorporate into our estimates. And at this point and as seasonality would include turnaround activity and other things too. So it's just kind of we don't -- at this point, we still believe that the estimates for throughputs that we have for 2013 and forward are still reasonable that we had in the prospectus and we're just expecting that there will be ups and downs throughout the calendar year.

Okay, and one other question I wanted to ask was the 9.5 times next 12-month multiple given for the 5% interest drop today, does that factor in any sort of expected tariff increase in July 1?

Yes, it would. Much like we had in the prospectus, where we had an estimated increase as of July 1, that would be included in there, yes.

Just checking, okay, thank you.

(Operator instructions). We have no further questions at this time in the queue.

Thanks, everyone, for joining us. If there are any follow-up questions, you can call either myself, Pam Beall, or Beth Hunter. We'll be in office this afternoon to take your calls. Thanks again for joining us. You can disconnect.

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