MPLX LP (MPLX) 2014 Q3 法說會逐字稿

Welcome to the MPLX third quarter 2014 earnings call and webcast. My name is Vivian and I'll 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. Please note that this conference is being recorded. I will now turn the call over to Mr. Tim Griffith. Mr. Griffith, you may begin.

Okay. Thank you, Vivian. Good afternoon and welcome to MPLX's third 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, its Chief Financial Officer.

We invite you to read the Safe Harbor statement on slide 2. 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'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 filings of both MPLX and Marathon Petroleum with the SEC.

With that, I'm happy to turn the call over to Pam Beall. Pam?

Thank you, Tim. Good afternoon and thank you for joining our call. MPLX reported solid financial results for the third quarter, with the performance that continues to expand the distributable cash flows of the partnership. Adjusted EBITDA was $40.2 million in the quarter, generating distributable cash flow of $33.4 million. Our Board of Directors declared a distribution of $0.3575 per unit for the third quarter, which represents a 4.4% increase from the second quarter and a 20.2% increase over the third quarter of 2013.

MPLX has provided distribution increases in each of the seven quarters since its initial public offering in October 2012, representing a compound annual growth rate of 19.3% over the minimum quarterly distribution. And importantly, to date, we've announced plans to substantially increase the pace of growth of the partnership to build size and scale more rapidly. As part of this growth, we expect to provide an average annual distribution growth rate in the mid 20% range over the next five years.

From an earnings perspective, we intend to grow MPLX December 2015 annualized EBITDA to at least $450 million. This represents approximately 3 times MPLX annualized EBITDA for the third quarter of 2014. This substantial acceleration of the growth of MPLX is highlighted on slide 4.

Pursuant to this decision, Marathon Petroleum Corporation's Board of Directors has authorized the sale to MPLX its remaining 31% interest in MPLX Pipeline Holdings. The roughly $80 million of EBITDA represented by the remainder of Pipeline Holdings is an important piece of this growth plan and we would expect those earnings to become part of the MPLX earnings stream in the near term.

The rapid changes occurring in the logistics and midstream business environment in North America make it clear to us that size and scale matter. Accelerating the growth of MPLX better enables the partnership to participate actively in the infrastructure development occurring in the US to support expanding North American production and changing crude patterns.

We also believe a partnership with a larger earnings base and enhanced access to capital expands MPLX capacity to take on projects or investments directly, including third-party acquisitions. (technical difficulty) also lessens the need to incubate large projects at MPC or rely on the sponsor support to pursue this desired investment program. While we will always favor investments that can be undertaken at MPLX organically, we're also very fortunate to have the expanding opportunity set available to the partnership to our relationship with MPC.

As announced earlier today, the pool of MLP-qualifying income at MPC has expanded by approximately $600 million to now approximately $1.7 billion in total. That increase is attributed to the additional earnings related to the fuels distribution business, including the increased fuels volume from the former Hess retail location.

One facet of our strategy is to pursue organic projects. A good example of this is the Cornerstone Pipeline and related build-out opportunities. During the third quarter, we completed a successful non-binding open season for the pipeline and a number of investment options. We were very encouraged by the response we received from a variety of interested parties. This pipeline along with associated build-out projects are designed not only to feed MPC's condensate splitter at its Ohio refinery, they're designed to meet the needs of producers, other refiners, as well as processors and marketers of a variety of natural gas liquids. These investments will allow our sponsor to leverage growing Utica production in Eastern Ohio and position MPLX to participate directly in the development of the needed infrastructure.

Based on the strong response during the initial open season, we are evaluating potential build-out projects that would include new investments as well as leverage existing significant MPC and MPLX logistics assets to provide additional service to Midwest markets beyond Eastern Ohio.

MPLX is also exploring options to deliver on natural gas liquids to the Chicago area and to pipelines that supply diluent to Western Canada. We expect to conduct a binding open season for these investments in the first quarter next year.

Given the recent decline in crude and natural gas prices and MLP valuations, I wanted to remind investors that MPLX fee-based portfolio has no direct exposure to commodity risk. Most of the crude and refined product flows that underlies earnings are related to MPC's crude and refined product movements, and are not directly impacted by the lower crude prices that we have seen recently.

The expanding pool of MPC's MLP-qualifying earnings I alluded to, now at $1.7 billion, combined with the Cornerstone and other organic projects, represent a significant source of potential growth for MPLX unitholders over an extended period of time. Our intent is to evolve MPLX into a large-cap diversified logistics company that is well positioned to participate in the energy infrastructure development taking place in the US.

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

Thanks, Pam. The bridge on slide 5 shows the change in net income during the third quarter of 2014 on a 100% basis, compared to the third quarter of 2013, as well as the adjustment for the 31% interest currently retained by MPC. 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 in prior periods and higher average tariffs received on the volumes of crude oil and products shipped. These increases were partially offset by lower volumes as well as higher cost of revenues, primarily due to the timing of maintenance activity.

As you can see on slide 6, distributable cash flow for the third quarter of 2014 was $33.4 million compared to $31 million of distributable cash flow for the third quarter of 2013. During the third quarter of 2014, MPC did not ship its minimum committed volume on certain MPLX pipeline systems. Although the $7.8 million of MPC deficiency payments in the quarter did not immediately enter into the determination of income, they are included in the $33.4 million of distributable cash flow in the period. Conversely, the adjusted EBITDA attributable to MPLX included $7.4 million of revenue resulting from recognizing volume deficiency credits that were generated in a prior quarter, which were not part of distributable cash flow for the third quarter.

Distributions for the third quarter will be $27.9 million. This represents a coverage ratio of 1.2 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 in maintenance spending and the timing of drop-downs and acquisitions. With the acceleration of earnings growth we have outlined today, our coverage may be well above this 1.1 times target for a more extended period of time.

Slide 7 provides adjusted EBITDA and distributable cash flow by quarter for MPLX and continues to highlight the stability and growth of distributable cash flow over time. Slide 8 shows that at the end of the quarter, we had $32.2 million of cash and $245 million available on our bank credit facility. This combination, along with our ability to access the public debt and equity markets, should allow MPLX to pursue growth opportunities that expand its growing base of distributable cash flow, including the accelerated pace of earnings growth we have highlighted today. Our consolidated total debt to consolidated EBITDA covenant ratio is 1.7 times, well below the maximum allowed of 5 times and continues to provide great financial flexibility for the partnership.

I would also like to point out that we expect our 2014 capital spending to decrease from the $148 million in our original budget to approximately $110 million. Included in the revised spending is $82 million for expansion capital and $28 million for maintenance capital. This reduction in spending does not change the projects we are pursuing, but rather is due to lower-than-expected costs and greater procurement efficiencies.

In closing, slide 9 demonstrates our commitment to grow and distribute cash flow to our unitholders. The bars illustrate our distribution history since the IPO and highlight our quarterly growth in LP distributions. MPLX's third quarter 2014 distribution represents a 20.2% increase over the third quarter 2013 and a 19.3% compound annual growth rate over the minimum quarterly distribution. As part of this substantial acceleration in earnings growth, MPLX expects to increase the growth rate of the LP distributions with the intent to maintain an average annual growth rate in the mid 20% range over the next five years.

With that, I will turn the call back to Tim Griffith.

Thanks, Don. With that, Vivian, I think we're prepared to open up the call for questions.

Thank you. (Operator Instructions) Brian Zarahn, Barclays.

Good afternoon.

Hi, Brian.

So, curious what drove the change and distribution growth policy.

Well, Brian, some people may have listened to MPC's call earlier this morning. But I can cover some of the elements that led to that decision, but certainly one of the significant contributors to that decision is the substantial growth in the domestic oil and gas production and the tremendous buildout that we see for the midstream assets in the US and the many opportunities where really size and scale become strategically important in midstream growth vehicle like MPLX and it's fully our intent to participate in that development. So when we indicated that we were going to form an MLP, we indicated that that was to participate in the growth and the buildout of the infrastructure and that's certainly our intent to do that.

Another factor is that we recognize that we have more qualifying income that we can put into an MLP over time and with the recent completion of the Hess acquisition, that Hess retail system has also expanded our opportunity set. So that added about 3 billion gallons of volume that were part of the Hess system historically and adding that to MPC's total wholesale volumes that takes us up to about 20 billion gallons and then just attaching a reasonable margin just assume $0.03 a gallon on 20 billion gallons, you expand your qualifying income to $600 million of EBITDA. So we have an expanded opportunity set.

And obviously, the other point that the MPC noted this morning in its call is that we're convinced that the market has continued to fail to recognize the value of the entire enterprise and the value in the substantial contributions of MPLX and even Speedway, our retail business, to the enterprise value. So, by accelerating the growth of these highly valued portions of the business, between MPLX now and Speedway, we believe that will highlight the tremendous value that really exists in the business, that's being missed in MPC's valuation today. So by growing the MLP, MPLX, we believe it'll position us well to participate in larger opportunities directly. As you know, we've talked about incubating projects at MPC and we'll continue to do that where it makes sense, especially as MPLX is easing into its higher growth, but it really expands our opportunity set which we think is tremendous. So we're excited about this decision, the shift in strategy. We think there are a lot of terrific opportunities to grow the Company and we're looking forward to doing just that.

I appreciate all the color and certainly the growth in fuels distribution cash flows certainly is a nice addition to the drop-down inventory. Just looking at the guidance of ramping up to $450 million of EBITDA by the end of 2015, obviously, that's driven by drop-downs, but is there any assumption of growth in the base business or is it all going to be from drop-downs?

No. Clearly, there will be some growth in the business, Brian. Now, we did indicate that when you look at that slide, we show that the third quarter annualizes to about $160 million. We mentioned the offer for MPLX to purchase the 31% remaining interest in MPLX Pipeline Holdings, that is $80 million. So clearly, there is a substantial additional amount that will be dropped down to -- or it doesn't have to be dropped down. As you know, there will be some growth from organic projects. There certainly will be tariff increases that will contribute to that. But as we indicated, near term, so most of that growth is going to come from drop-downs from MPC.

Okay. And then, if you shipped into the third quarter, can you provide some more color on product pipeline volumes (multiple speakers) basis?

Sure, Don. Yes.

Sorry. If you saw, Brian, product volumes were down and one of the primary drivers of that is that our major shipper had opportunities to take advantage of export capabilities and other things like that. So we would say that the market was driving some of that decrease in the volumes; however, that was one of the reasons and we knew over a period of time when we established MPLX -- one of the reasons that we were doing that was because we wanted to have these minimum volume deficiency commitments that allowed us to generate a consistent earnings stream or a minimum earnings stream over a long period of time.

Jeremy Tonet, JPMorgan.

Good afternoon and congratulations on the big news. The market seems to like it.

Thanks, Jeremy.

You mentioned the retail ops as far as something that could find its way into the MLP over time, and I'm just wondering would these drop-downs be structured in a way to mitigate any volatility in the cash flows of these assets, kind of similar to your existing asset base as those contracts are structured.

Yes, Jeremy. We would expect that to be very stable cash flow basis.

Okay, great. And then, on third-party acquisitions, it seems like this could be a more meaningful part of the story going forward. Would you look to stay within kind of the crude refined products sphere or would you look to expand more into natural gas pipes or natural gas gathering and processing? And if so, how do you think about the balance of fee-based business versus commodity price exposed business at that point?

Well, Jeremy, I'd say first of all, our thoughts around acquisitions haven't really changed. It's always been part of the pillars of growth that we've identified really since we IPOed MPLX, but we said that we'd be focused on tariff increases, organic projects, and acquisitions, whether those were acquisitions from MPC or whether those were acquisitions from third parties. So I wouldn't say we've really changed our thought about growth from those various sources or those opportunities. I would say it's a challenge given the current size of MPLX to look at a whole variety of acquisition opportunities that would certainly limit what MPLX could take on given its current size. So having a larger entity with greater access to capital markets certainly would provide greater opportunities for MPLX to consider a whole variety of acquisitions.

In terms of the type of acquisitions, those that would always rise to the top would be opportunities that would benefit both the sponsor and MPLX, but we would not rule out opportunities that would just benefit MPLX and grow its third-party business. We will continue to be focused on fee-based opportunities that are not directly tied to commodity price risk, regardless of what kind of opportunities we're looking at, whether those are acquisitions or whether they're organic projects. I would say that today, we do have within MPLX that we have one butane cavern. Among those assets that exist today in the R&M midstream business that will make their way into MPLX over time exists other assets. We have additional natural gas liquids storage caverns and pipelines. So, those kinds of activities MPC and MPLX are engaged in today. So I wouldn't rule it out, I wouldn't necessarily say that it's a particular target.

Okay. And just one quick follow-up. I mean, if MPLX is looking to become a more diversified MLP, is there any emphasis on maybe getting into other parts of midstream that are more diversified or further away such as gathering and processing or it really comes back to what makes sense within the framework of the whole Marathon enterprise?

Well, again, I wouldn't say that we would necessarily limit ourselves, but certainly those opportunities that benefit both the sponsor and the MLP would always rise to the top in terms of preference.

Okay, great. That's it from me. Thank you.

Okay. Thank you.

Lin Shen, HITE.

Okay. Thank you for taking my question. It was great to hear the parent company is going to accelerate their MLP drop-downs. I'm just wanting to ask what's your plan to finance the drop-down, including the $80 million EBITDA maybe this quarter and also another maybe $200 million for 2015.

So, our expectation is that we have a number of ways to finance this and we would likely do it through a combination of debt and equity. And with respect to debt, our view around debt is that we want to make sure that we position MPLX to be an investment-grade credit rating and have a credit profile like that. So, longer term, we would expect that we would target something that would be a debt-to-EBITDA ratio of 4 times run rate on EBITDA.

Great. Can I ask also a follow-up? Yesterday, one of your competitors with similar drop-down story talked about their drop-down story. And they said, they believe the MLP can have a capacity about 1 billion to 2 billion annual drop-down capacity based on the [luxury] of their equities and also their debt market. I'm just wondering maybe using MPLX can do more than that or probably similar scale?

Well, I guess, we haven't focused on what the maximum drop could be at. What we're really doing is going to target and finance or build our balance sheet around maintaining this investment-grade credit profile. Clearly, there are drop-down opportunities, but as Beth -- or as Pam stated, we have the opportunity here as well to grow the business organically or to participate in M&A type activities. And so, we want to be of sufficient scale so that we don't miss out on those opportunities.

Thank you very much.

Richard Roberts, Howard Weil.

Hey, good afternoon, folks. Just a couple from me. For one, it sounds like part of the rational behind the strategic shift here to accelerate is just to get to a size and scale where you can pursue more organic opportunities. So I was wondering if you can give us an idea if there are meaningful projects out there that you've identified, that you want to try and develop at the MPLX level or maybe just give us an idea of the opportunity set in terms of potential CapEx for the next couple of years that you see out there on the organic side.

Yes. So just the best example really is this Cornerstone Pipeline project and the buildout opportunities around the Utica and Marcellus natural gas liquids production. So we went out for our open season and did that in the third quarter and we had tremendous response. And so we think that this could be a much bigger opportunity than just the pipeline from Southeastern Ohio to our Canton refinery.

As I mentioned, we have some existing pipes in the ground and right of way that we can leverage through MPC's ownership and MPLX pipeline operations that we could build on to take some of these natural gas liquids to other markets in the Midwest beyond just Eastern Ohio. So that in and of itself, we can't quantify it at this point, we really need to get through the binding open season in the first quarter next year before we'll be able to give some certainty around the full scope and size, capital investment around all of those opportunities.

But Marathon Petroleum is another example, has already exercised its option to participate in the equity ownership of Southern Access Extension as an Enbridge Pipeline project from Flanagan down to Patoka. Certainly, Patoka is a very significant hub for MPC. It's a very large crude storage area. There are a lot of projects that are being discussed around expanding that whole area. And so MPLX, of course, is making investments to support MPC's commitment to the Southern Access Extension project. And then, of course, MPC has this larger commitment with Enbridge again up in the Bakken to pursue the Sandpiper and North Dakota system investments. So really anywhere that MPC has an interest in accessing attractively-priced crude oil or condensate, those would be high priorities for MPLX and we're actively pursuing opportunities around those plays.

The other thing I would mention is that again, this is primarily related to MPC, but with its recent acquisition of the Hess retail business, MPC is a significant supplier to the East Coast, the whole mid-Atlantic area. So we're evaluating how to, from an MPC standpoint, optimize supply into those markets. And there are opportunities we're evaluating for MPLX to participate in that, and then I'd also mention our Marathon Petroleum's acquisition of Galveston Bay down in the Texas Gulf also create some opportunities for MPLX to make some direct investments to support how the sponsor wants to optimize its supply of water-borne markets. So there really are a large number, size and variety, of opportunities that MPLX is pursuing.

Okay, great. Thank you. Maybe if you could give us a sense of as you move into 2016, you'll be starting off in the $450 million EBITDA range and presumably growing from there. What size organic spend do you think you can handle at that sort of level?

I don't think we've really tried to put a quantification around that at this time. I think it's just going to depend on the profile of those projects.

Okay, got it. And then, maybe one more from me. I guess the prior drop-down strategy has sort of been you were targeting a distribution growth rate and you would drop assets just as needed timing and size wise to meet that growth rate. If I'm hearing Don's comments correctly on coverage, it certainly does not going to really be the -- I guess the distribution growth target won't be the driver anymore, it will be some more a function of trying to get more assets into MPLX and MPC faster. Is that correct way of thinking about it?

Yes, I think that's an entirely correct way to look at it. We believe that particularly over the last two years since we IPOed, the MLP landscape has changed dramatically in terms of the pace of growth, the opportunities that are out there, some of the M&A activity that's occurring, the pace at which organic projects are being pursued. And so when they launched MPLX, we launched MPLX to be a tool to allow us to participate in that midstream infrastructure buildout and we want to be of the sufficient size that we're not missing out on that opportunity.

Great, Don. Thanks so much. I appreciate it and congrats again on the move today.

Yes, and I would say long term, our goal is still to be at a 1.1 times coverage ratio, but if we do a drop because we think it's strategic or we do something that gets us to an earnings profile or a distributable cash profile, that is a little bit maybe front ended, that is really because it's strategic as opposed to we're trying to drive a particular coverage ratio, but long term, we started out wanting to get to a 1.1 times coverage ratio. And I'd say long term, that's still our goal.

Understood, thanks.

Ed Westlake, Credit Suisse.

Yes, thanks for taking my question and again congrats on being a little bit more assertive. There's quite a few different questions. On Cornerstone, I guess that means you're looking at option one potentially, the big amount going all the way over to Chicago. When do you reckon you would have that open season close?

Well, again, that's going to be first quarter of 2015.

Right. 1Q15.

Yes, we're hoping to really have the commitments to move ahead on a variety of these different projects that we've discussed in the open season -- in the initial nonbinding open season.

Right. And what about I guess larger options for you to get gas or NGLs? I mean obviously, maybe even the Marcellus. I mean these are sort of in your neck of the woods obviously other large MLPs are pursuing some big trunkline projects. I mean that would be a very large project, maybe a little bit out of the wheelhouse, but any thoughts around that?

Well, again, I wouldn't rule anything out in terms of what might be interesting for us to participate in. I would say that especially when we were an integrated operation of a larger oil company when we were integrated with Marathon Oil, the pipeline operations ran a whole variety of activities that were not necessarily in today. For example, our natural gas pipelines in Kenai, Alaska. Marathon Oil was involved in an LNG export operation up there. So it's not like these natural gas pipelines will be completely foreign to what we've operated today. Again, they are not in MPLX today, but we do have some natural gas liquids pipelines that are retained at MPC that someday will make their way into MPLX.

We've also operated offshore pipelines and today, we still do operate gathering systems for Marathon Oil up in Wyoming. So I would say that we have a broad array of capabilities in terms of comfort levels, in terms of operations. And so we really aren't prepared to get into specifics. I would just say that we are considering a wide variety of opportunities.

And staying still close to home, I guess the Sandpiper Southern Access, I saw a newspaper article talking about delays on permitting, trying to get across Minnesota or some review. Is there any delay there or was that just noise?

Yes. I mean Enbridge has acknowledged that they're expecting the Sandpiper project will move out about one year in terms of their expected online time frame and that's really while they study the route of the pipe as it goes into the state of Minnesota in particular, but that's really their project to comment on.

Right. Okay. And then, you mentioned Galveston. Obviously, there are some projects going down to Corpus and other areas to basically then act as sort of export offtakes, if we go down the export route or at least barge sort of Jones Act offtakes to get to other refineries in the Gulf. Is there any opportunities for you to also sort of be attractive as a sort of an endpoint for that type of a terminal, for Permian and Eagle Ford production?

Well, I would say that we have some terrific assets on the Texas Gulf Coast at Galveston Bay in Texas City and we have a lot of opportunities to optimize all of the logistics around those locations; and then, of course, we constantly look for opportunities to optimize around our Garyville, Louisiana, refinery in Louisiana; and of course, we are a 51% owner of both Louisiana Offshore Oil Port, which today is designed to bring foreign crude into the US. But there could be options and opportunities around LOOP. We operate Capline and Marathon announced today with its owners. Other owners of Capline that we're undertaking a study about the future long-term best use of that particular asset. So we'll just ask you to stay tuned for the results of those studies.

It's a big project, but I can see VLCCs loading Bakken and heavy oil to world markets already. Okay, thank you very much.

Thanks, Ed.

Shneur Gershuni, UBS.

Hi. Good afternoon, guys. Most my questions have been asked and answered, but I just had couple of quick follow-ups to some of the earlier questions. First, with the question about financing, you've sort of talked about a 4 times net debt to EBITDA coverage ratio and so forth. Would the approach be to try and move the debt up first and then go with the equity? Would you sort of pace it out and so forth? Is there kind of a way that we should be thinking about it certainly in terms of helping the liquidity of the stock? Are you thinking about ATM sizes and stuff like that? Just wondering if you can give a little bit more color with respect to how you're thinking about it.

Well, I guess, this is Don. I mean, we view the debt markets as being very attractive currently. So we are committed to maintaining an investment-grade credit profile. But our view is that we would use our balance sheet and the debt markets to get to that 4 times debt to EBITDA ratio and -- or sort of guideline as we're thinking about financing alternatives.

Okay. Great. And then, a second question, I mean as I look through MPC's presentation today, maybe this is more an MPC question, but clearly it sort of seems that part of it is to recognize the value that they think is missing with respect to both MPLX as well as the GP value at the MPC level. I mean is there ultimately a plan for GP IPO of some sort. I mean is that sort of the path that we're on and whatnot to sort of get the valuations recognized across the board and be able to unlock the value? Is that sort of the thought process?

I'm not sure that's probably something to answer on an MPLX call. I mean I think there is -- and Gary Heminger alluded to it on his call that we at MPC believe there's a lot of value (technical difficulty) interest in the GP interest in MPLX and that wasn't pulling through, in a way that I think was, we were expecting it would pull through, so I think highlighting the value of MPLX and really showing how much distributions and how much cash will come back to MPC through its GP ownership interest in those IDRs, I think was one way to highlight that value that maybe wasn't being highlighted as clearly. I still believe that one of the reasons or the primary reason for accelerating MPLX and the pace of growth is so that we don't miss out on the strategic opportunities that we believe exist now and those opportunities are continuing at a pace and we want to make sure that where we have the right tools in place, so that we can participate and not miss out on an opportunity that may have -- some of that may have limited time windows or time frames or tight time frames; others of them will have longer time frames.

Okay. And then, one final question if I may. You go through this process over the next, I guess couple of quarters, you move all the EBITDA down and so forth. You've achieved a much larger size and whatnot. When you think about 2016, 2017 and 2018, I realize you're not prepared to lay out a CapEx assumption for those years, but that being said, could we expect the organic growth at that point to shift to be more than 50% happening with inside MPLX itself rather than going through drops? I mean is that sort of the way we should be thinking about it going forward?

I'm not sure we've targeted necessarily a percentage. I would say that we would -- we are focused on and are very -- a high priority for us is to have organic growth and one of the things that we continue to highlight is some of the opportunities that we are identifying like the Cornerstone opportunity, but I think you should -- we will be very focused on building that pipeline of no pun intended of organic opportunities and making sure that we're clearly communicating that portfolio, if you will, of organic growth projects to you all. We are not just a drop-down story. I mean I think what really is nice about having a sponsor that has so many assets that are MLP qualifying is that we can give a high level of confidence around our ability to grow at the distribution growth rates that we've communicated, while also having a lot of capacity to take on projects on our own.

Great. Thank you very much. Really appreciate the explanation.

Jeremy Tonet, JPMorgan.

Actually my follow-up questions have been answered, so thank you again for your time earlier.

Sorry, Jeremy.

Thanks, Jeremy.

Phil Gresh, JPMorgan.

Hi, there. Good afternoon.

Hi, Phil.

Hi, Phil.

Just a couple of quick follow-ups. One was on the discussion on Capline. In the release this morning, there was a mention of a potential connection with the Diamond Pipeline and so I know you're evaluating a lot of different options, understood. Just wondering exactly how that would play into this. There is obviously the ability to potentially reverse align and go north to south, but what specifically are you thinking around the linkage with Diamond?

Yes. Jeremy, I'm going to pass that one over to Craig Pierson who is President of Marathon Pipeline and they operate Capline.

Yes. The connection of that study into Capline, there are multiple opportunities when you make that connection to look to southern markets and look to the northern markets. So all those things will be looked at.

Okay. So yes, I was just wanting more specifically about how Diamond would fit in, but we can take it offline. Second question was with respect to the callout for the retail side, the $600 million of [droppable], would you able to tell me how much of that is already in the retail business versus in the refining business? Because I believe the number of gallons you talked about is less than the number that's in the retail segment. Is there any kind of split of that EBITDA?

Yes. So somebody called at retail earlier. I guess the way I refer to it is or think of it as fuels distribution and that is really the volumes that are going from the refinery to the rack and that's 20 billion gallons. So that includes our wholesale sales, our brand sales, that is the population, if you will, of those gallons. That's 20 billion gallons and for purposes of putting a value on it, we used a $0.03 per gallon value to get to the $600 million. Speedway is -- they're a company that does 3.5 billion gallons or so and Hess also is a 3 billion gallon kind of entity. So you're talking about call it the retail gallons probably closer to 6 billion or a little over 6 billion gallons.

Got it. So maybe two-thirds of the gallons still are within the refining EBITDA at this point?

Well, I mean, even when you go to rack, I mean you're going from the refinery to the rack. So that's kind of one piece of it and then you're going from the rack to retail, that's a second piece of it. So, what we've really been highlighting the 20 billion gallons is the refinery to the rack.

Okay, got it. Okay, thank you.

(Operator Instructions).

Okay. Well, Vivian, it looks like there is no further questions. So at this point, we'll close the call. We want to thank everyone for joining us and for your interest in MPLX. If there are additional questions, if you'd like clarification on any of the topics discussed this afternoon, Geri Ewing and Teresa Homan will both be available to take calls. Thank you for joining us.

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