MPLX LP (MPLX) 2014 Q1 法說會逐字稿

Good afternoon, and welcome to the first quarter 2014 earnings MPLX LP conference call. My name is Brandon and I'll be your operator for today.

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 will now turn it over to Mr. Tim Griffith. You may begin, sir.

OK. thank you Brandon.

And welcome to MPLX's first quarter 2014 earnings webcast and conference call. The synchronized slides that accompany this call can be found on MPLX.com under the investors tab.

On the call today are Pam Beall, President of MPLX, and Don Templin, Chief Financial Officer.

We invite you to read the safe harbor statement on slide two. 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 MLPX's sponsor, Marathon Petroleum Corporation.

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 the filings of both MPLX and Marathon Petroleum with the SEC. Now, I'll turn the call over to Pam Beall.

Thank you Tim, and welcome everybody. Thanks for joining us.

MPLX reported solid first quarter results that demonstrate consistent earnings and cash flow generation. This performance and acquisitions have enabled us to continue to increase distribution substantially to our unit holders.

Our board of directors declared a distribution of 32 and three quarter cents per unit for the first quarter. This distribution represents a 20.2 percent increase over the first quarter of 2013. On March 1st, MPLX acquired from our sponsor a 13 percent in MPLX Pipeline Holdings L.P. for $310 million. This increased our ownership interest in Pipeline Holdings to 69 percent from the 56 percent we held previously. This is the second acquisition since our initial public offering.

In addition to earnings and cash flow from increased tariff revenues and acquisitions, we are pursuing organic investments in MPLX to grow the partnership and to support an attractive distribution growth profile for our unit holders over an extended period of time.

MPLX continues to advance the planned cornerstone pipeline in southeast Ohio that will enable us to bring liquids production from the Yutica [ph] shale to Marathon's Canton refinery.

Surveying of the proposed route is in progress and MPLX anticipates right of way easement purchases to commence during the second quarter of this year. MPLX is progressing plans for a non-binding open season in the third quarter this year, to determine shipper interest in the pipeline. Construction of the pipeline is anticipated for 2016, with an in-service date by the end of that year.

If there's sufficient condensate production, Cornerstone could serve as the foundation for other organic projects to ship excess condensate to western Ohio and Canada.

As we've said in the past, our sponsor, Marathon Petroleum intends to use MPLX as the primary growth vehicle for its midstream business. We continue to explore other organic growth opportunities that will provide desirable cashflow characteristics for MPLX as the partnership grows.

Additionally, MPC has a significant number and variety of mid-stream assets which could be dropped down into MPLX to help us achieve our long-term distribution growth objectives and this portfolio continues to grow.

Now, I would like to turn the call over to Don Templin to review the financial results for the quarter.

Thanks Pam.

The waterfall chart on slide four shows the change of net income during the first quarter 2014 on a 100 percent basis compared to the first quarter of 2013, as well as the adjustment for the interest retained by Marathon Petroleum.

The primary drivers for the increase in our net income were the recognition of revenue related to volume deficiency credits arising from deficiency payments received last year, and higher average tariffs received on the volumes of crude oil and products shipped.

While our crude and product pipeline throughputs were lower than projected, minimum volume commitments from MPC allowed us to maintain a stable stream of cashflow to MPLX to fund our distributions. These deficiency payments are included in distributable cash flow in the current accounting period, but are classified as deferred revenue in the financial statements. Revenue is recognized when the credits are used, expire, or can no longer be utilized.

According to Slide 5, distributable cash flow for the first quarter of 2014 was $37.7 million compared to $28 million during the first quarter of 2013. As we discussed last quarter, although the MPC deficiency payments do not immediately enter into the determination of income, they are included in distributable cashflow for the quarter.

During the first quarter of 2014, MPC did not ship its minimum committed volume on certain MPLX pipeline systems. Included in distributable cashflow attributable to MPLX for the quarter was $7.7 million of deficiency payments from MPC that was not included in net income or adjusted EBITDA.

Adjusted EBITDA attributable to MPLX included $11.5 million of revenue resulting from recognizing volume deficiency credits that were generated in a prior quarter.

The total cash distribution for the first quarter will be $25 million. Based upon the distributable cashflow, this represents a coverage ratio of approximately 1.5 times compared to our target coverage ratio of 1.1 times. Our coverage ratio will fluctuate from period to period, primarily due to the seasonality and maintenance spending, and the timing of drop-downs and acquisitions.

Slide 6 provides adjusted EBITDA and distributable cashflow by quarter for MPLX, and continues to highlight the stability and growth of distributable cashflow over time.

Slide 7 shows that at the end of the first quarter, we had $40.6 million of cash. We also have access to $230 million on the bank credit facility, and $50 million undrawn on an inter-company credit agreement with MPC, which was put in place during the first quarter.

$280 million of long-term debt at quarter end primarily reflects the new borrowing to fund the March 1st acquisition of the additional 13 percent interest in pipeline holdings. Our current financial and liquidity positions should allow MPLX to pursue growth opportunities that expand its growing base of distributable cashflow.

Our consolidated total debt to consolidated EBITDA [inaudible] ratio is 2.2 times well below the maximum allowed of five times, and continues to provide great financial flexibility for the partnership.

In closing, slide eight highlights our history since the IPO of distribution growth and acquisitions, demonstrating our commitment to add value to unit holders. The graph outlines the consistent quarterly growth in distributions amounting to a more than 20 percent increase over the first quarter of 2013 distribution, and a compounded annual growth rate of 18.1 percent over the minimum quarterly distribution.

MPLX remains committed to sustaining long-term distribution growth for our unit holders for an extended period of time and we believe the value proposition for current and prospective MPLX unit holders will continue to be compelling.

Now, I will turn the call back to Tim Griffith.

Thanks, Don.

Brandon, with that, we're prepared to open up the call for questions.

Thank you sir.

And we will now begin the question and answer session. If you have a question, please press star, one, on your touch-tone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. If you're using a speaker phone, please pick up your handset first before dialing the numbers.

Once again, if you have a question, please press star, one on your touch-tone phone.

And from Barclay's, we have [Brian Zarin] on line. Please go ahead.

Good afternoon.

Good afternoon, Brian.

Hi Brian.

Can you -- I guess on the cost of revenues line item, can you comment on the $4 million reduction year over year?

I'm sorry, which line?

The cost of revenues. The client. About $4 million versus the first quarter of '13.

On the income statement.

I'm sorry.

The primary reason for that was lower volumes and pipeline maintenance expense.

OK.

Yeah, the -- I'm sorry?

As volumes ramp up, we should see that return to...

That's right.

So, you know, you saw that our volumes were down, but the -- the -- so, you know, that would -- that would be -- there would be a correlation there, and then we have a pipeline maintenance expense was down somewhat, but that's -- I would say that was a primarily weather-related.

OK.

So that should, you know, that should come back over the remainder of the year.

OK. And then any update on maintenance [capx] for the year?

Brian, we estimate that it's -- still be 35 million. That's the guidance that we gave back in December.

OK. So, unchanged. So, it'll ramp up. It was a little bit light. It was fairly low in the first quarter.

Yeah, first quarter's a tough year to do a lot of maintenance on pipe.

OK. And then on GNAs, is that a reasonable run rate in the first quarter?

Well, in the GNA number for the first quarter, Brian, is a little over $2 million related to bonus -- bonus expense from 2013. We -- when we determine bonuses, a major part of the bonus is based upon comparator information. Some of that information was not available til 2014, so there was a top [upper and a cruel] in the first quarter of '14 related to 2013's activities.

OK, and then what's your outlook? I know there's some refinery maintenance, but what you're outlook for -- obviously weather, but for pipeline volumes, going forward?

Yeah Brian, we don't typically provide -- well, we don't typically provide that kind of forward look. In our investor data pack, we do provide some history, but you know, Marathon Petroleum, our sponsor company, in the first quarter, did have some significant refining turnaround activity that we reported on earlier today.

But Marathon typically does not provide information related to its turnaround activity until after it occurs. And of course, that would be the largest impact on the -- on the throughput volume for -- for MPLX. Since Marathon Petroleum continues to be our very largest shipper.

OK. And given the high coverage in the quarter, and the growth rates at the high end of your range, I assume that you'd still be comfortable retaining the excess cashflow and not going above your range on the growth?

Yeah, I think that the -- you know, certainly there's going to be some quarterly variance in -- in the distribution coverage, and so you know, it will fluctuate. And again, this is a first quarter, and we had the impact of an acquisition for one month cashflow, and then we also had very low maintenance capital during the quarter.

Yeah, and we expect that maintenance capital, Brian, to come back. I mean, there was -- the severe weather, particularly in the Midwest, impacted our ability to, you know, to undertake some of those maintenance projects.

But I would say the -- the guidance that we've given in the past, the 15 to 20 percent distribution growth rate, you know, we're not -- we haven't changed that guidance.

And the 1.1 times coverage ratio is, you know, still also where we're targeting.

Thank you.

From Wells Fargo, we have Michael Blum online. Please go ahead.

Yeah, thank you. Just again to clarify, in terms of not -- not hitting those MVC volume levels, can you just talk a little bit more about what's driving that? Is it all just the refining turnarounds at Marathon? Is there anything else fundamentally driving, you know, volumes one way or the other on any of the pipes?

Yep Michael, this is Don. The primary driver there is that, you know, our -- our major shipper has been accessing the export market probably in a more significant way than they originally anticipated, at least in the early years when those agreements were put in place, and you'll recall that the -- you know, the commitments are 10 year commitments, so there were some expectations around how you would grow into volumes and -- and changes in refined product movement or placement patterns.

But the -- the primary difference right now is that as I said, our primary shipper has been accessing the export markets.

OK. And does that change the way you would think about future drop-downs in terms of placing assets?

Obviously you've got the remaining interest in pipeline holdings, but placing other assets into MPLX that have a higher utilization, or shall we not -- is that not the right way to think about it?

Go ahead Pam.

No, I was just going to say with the -- with the transportation service agreements that are -- that are in place, you know, you get the assured cashflow from those contracts, and you know -- certainly as we think about MPLX and its growth over time, any one individual pipe will be diminished in terms of its overall impact to the -- to the partnership.

Great. Thank you very much.

And once again, if you have a question, please press star, one on your touch-tone phone. We'll stand by for any further questions.

OK. Well, in the absence of questions, I guess we'd like to thank everyone for joining the call and thank you for your interest in MPLX. If there are additional questions you'd clarification on any of the topics discussed, Beth Hunter and [Jerry Yoon] will be available to take your calls. Thank you for joining us.

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