MPLX LP (MPLX) 2013 Q3 法說會逐字稿

Welcome to the MPLX third-quarter 2013 earnings conference call. My name is Brandan and I will be your operator for today. (Operator Instructions) Please note, this conference is being recorded. I will now turn it over to Ms. Pam Beall. Pam, you may begin

Thank you, Brandan. Good afternoon and thank you, everyone, for joining us for the MPLX third-quarter earnings webcast and conference call. You can find synchronized slides that accompany this call on the MPLX website. On the call today are Garry Peiffer, our President of MPLX, and Don Templin, our Chief Financial Officer. If you turn to slide 2, we encourage you to read the Safe Harbor statement. It's a reminder that we will be making forward-looking statements during the presentation and during the question-and-answer session.

Some forward-looking statements may relate to MPLX sponsor, Marathon Petroleum Corporation. 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 the filings of both MPLX and Marathon Petroleum. Those are filed with the SEC. Just as a reminder, we will be hosting an Analyst and Investor Day at the Saint Regis Hotel in New York on December 4. If you've not received an invitation and wish to attend, please contact me and we'll get you registered. I'd now like to turn the call over to Garry Peiffer for opening remarks.

Good afternoon, and thank you for joining us today for the third-quarter earnings conference call for MPLX. Consistent with our expectations, MPLX reported solid financial results for the quarter that yielded $30.5 million of adjusted EBITDA and $31.1 million of distributable cash flow. We are pleased our Board of Directors declared a distribution of $0.2975 per unit or $1.19 per unit on an annualized basis. This represents an increase of $0.0125 per unit or 4.4% above the second quarter 2013 distribution of $0.285 per unit.

Our team continues to pursue growth opportunities for MPLX that focus on multiple avenues to achieve our desired growth in annual distributions. In addition, Marathon Petroleum Corporation, MPLX's sponsor, continues to advance organic investments in its midstream businesses that will provide a catalyst for significant earnings growth and are candidates to be dropped into MPLX when these projects achieve stable cash flows.

MPC's participation in the recently announced Southern Access Extension Project is just one example. Marathon Petroleum is also active, very active, in the Utica shale play in eastern Ohio. MPLX and MPC are developing a new pipeline project in the Utica shale region that will initially connect multiple production facilities in eastern Ohio with MPC's Canton, Ohio refinery and other MPLX pipelines in the area. This project will complement this existing condensate and crude oil truck unloading facility at Canton, and a truck to barge logistics operations at Wellsville, Ohio that was brought online in October.

We continue to be enthusiastic about the prospects for MPLX. As we've mentioned before, we remain committed to positioning MPLX among the top MLPs and we are targeting an annual distribution growth rate of 15% to 20% for at least the next several years. We will continue to pursue opportunities that support that intent. Now, I will turn the call over to Don Templin to review the financial results for the quarter.

Thanks, Garry. As you'll recall, the historical financial statements of MPLX prior to the IPO in 2012 included the results of certain undivided interest pipelines that were not contributed to MPLX at the time of that 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 and consistent with the last several quarters, I will focus my comments today on MPLX 's actual third-quarter 2013 results, as compared to the projected results that we'd included in the prospectus that was prepared at the time of the IPO. The waterfall chart on slide 4 compares the estimated third-quarter 2013 net income shown in the prospectus to the third-quarter 2013 actual net income. The primary drivers for the increase in our net income were lower expenses and higher tariffs, partially offset by lower throughput volumes on our pipelines.

Expenses were lower primarily due to the timing of planned project work. While our crude and product pipeline throughputs were lower than projected, minimum volume commitments from MPC allowed us to maintain a stable stream of cash flow to MPLX. These payments are included in distributable cash flow in the current accounting period, but are classified as deferred revenue in the financial statements. Revenue will be recorded when the credits are used or expire.

Turning to slide 5. Distributable cash flow for the third quarter of 2013 was $31.1 million, compared to the $20.7 million estimate included in the prospectus. While the MPC deficiency payments I just discussed don't immediately enter into the determination of income, they are included in determining distributable cash flow for the quarter. As you can see on this slide, there was $5 million related to MPC deficiency payments in arriving at the $31.1 million of distributable cash flow for the 2013 third quarter. Just as a reminder, the reverse will be true when the credits are either utilized or expire.

That is, there will be revenue and earnings recognition, but no impact on distributable cash flow in the period. In addition, distributable cash flow for the 2013 third quarter was favorably impacted by increased earnings associated with the drop-down that was made in May, 2013. As Garry Peiffer mentioned, our board declared a cash distribution of $0.2975 per unit, which represents a $0.0125 per unit increase over our second quarter distribution and $0.035 per unit over our minimum quarterly distribution.

The total cash distribution for the third quarter will be $22.5 million and represents a coverage ratio of 1.38 times. Our coverage ratio will fluctuate from period to period, primarily due to the seasonality in our planned spending profile. Slide 6 shows that at the end of the third quarter, we had $86.9 million of cash, primarily consisting of proceeds from MPLX's initial public offering, which were retained to pre-fund capital projects. We also have access to a $500 million undrawn 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 of five times. In closing, slide 7 includes a number of financial trends demonstrating our strong performance since IPO. We believe we are well-positioned to sustain this strong performance and growth into the future. And now I will turn the call back to Pam Beall.

Brandan, we're ready to open up the call for questions.

(Operator Instructions)

Brian Zarahn, Barclays

Good afternoon

Hi, Brian

I guess looking at third-quarter pipeline volumes, what drove -- throughputs to come in a little bit below expectations?

Well, there were several factors. One was the fact that MPC, the sponsor, had significant exports, and so those exports took volumes away from the Garyville to Zachary line and I would say that drove a significant amount of that.

Okay. Is that something that we should expect to continue from sort of lost volume from exports or do the -- how should we think about that?

When we set the volumes originally and when we set the minimum throughput arrangements, that was a ten-year look and so we anticipated that from time to time there would be quarters or other periods were the volumes would move around, but I think that generally we think that there's a reasonable mix right now, where those volumes won't fluctuate significantly from what we're out they're estimating.

Okay, that's helpful. Looking at your 15% and 20% distribution growth target, for 2014 how should we think about the metrics? Are you looking at full-year 2014 distribution declared or you are looking at the fourth quarter of 2014 annualized versus the $1.05 distribution initially?

It would be the annualized 2014, but compared to the $1.05. Go to the payout. The is a payout in 2013

2013's the annualized MQV and then 2014 would be annualized fourth quarter compared to 2013 annualized fourth quarter.

Okay. And then on the Utica pipe project can you give some additional color on expected capacity, cost, potential returns?

Sure. You might appreciate the fact that this is fairly new project for us that we're still trying to get some definition for and we're expecting to be about 50 miles of pipe, about 8-inch diameter pipeline is what we're looking at, at the moment. Roughly in the range of $100 million plus or minus. We're still in the definition phase of what we're going to be doing with all of the ancillary facilities.

So, it will be primarily used to ship condensate and crude and natural gasoline from the Utica formation up to either our Canton refinery or over to Wellsville. So, we're still working on the details of the transaction, but it will connect some of the production in the southern southeastern Ohio into our facilities more in the Canton, Wellsville area. So, it won't be on stream until probably 2017 or so. So, we are beginning the right-of-way work, as well as planning for the construction.

Okay, I just wanted to follow up on that. How would you anticipate the cost to be shared between MPC and MPLX?

Well, we would look at this as that MPLX would own the line and would have a reasonable tariff they would generate on the line. And so, there would be no sharing of the refinery profitability that may accrue because of bringing these -- this production to Canton or bringing over to Wellsville. So, it would be more of a traditional pipeline type of tariff arrangement on the line.

Thanks, Garry.

Brian Brazinski, Bank of America

Hi. Was just curious to get a little or expand a little bit more on what Brian had just asked. So, to be a little bit more clear, is this going to be developed within MPLX holding or -- ?

Yes

Okay. Make that absolutely clear. And then the only other question I had is if you guys don't mind just discussing your thoughts or outlook for continued drop-downs of MPLX holding?

Well, as we -- this is Garry -- as we've said oftentimes our major goal is to achieve an annual distribution growth rate of 15% to 20% for at least the next several years. And fortunately we have a number of levers to achieve that annual growth. The first and foremost is that about 90% of the revenue of MPLX is FERC fee-based revenues. So, with the indexing methodology that FERC has we have a pretty good increase in bottom line or in distributable cash from the increasing tariffs.

Secondly, we are going to be providing for and hopefully completing here relatively shortly, some new organic projects, one of which is like this expansion we talk about in Utica, although that's not immediate. We are trying to build the inventory of projects within MPLX to allow us to achieve some organic growth. We're looking at a lot of opportunities to acquire assets.

So, that would be our third way of acquiring or growing the business and the cash. And last, we have the final lever to the point that we need to contribute or grow EBITDA a little bit further to achieve that 15% to 20% goal would be dropped. So, at the moment they would be our fourth lever we would pull after the other three or when the other three didn't achieve that growth rate we were trying to achieve

Okay. All right. Thank you very much. Appreciate it

(Operator Instructions)

Brendan, it appears as though there are no further questions, so we'll go ahead and terminate the call

Okay --

Thanks, everyone, for joining us today. If you have any follow-up questions, Beth Hunter, Geri Ewing and I are in the office this afternoon. We'd be happy to take your questions. Thanks, everyone Bye.

And this concludes today's conference, thank you for joining. You may now disconnect.