MPLX LP (MPLX) 2015 Q3 法說會逐字稿

Welcome to the MPLX LP 3Q 2015 earnings conference call. My name is Corey and I will be your operator for today's call. (Operator Instructions) Please note that this conference is being recorded.

I will now turn the call over to Geri Ewing, Director of Investor Relations. Geri, you may begin.

Thank you, Corey. Good afternoon and welcome to the MPLX third-quarter 2015 earnings webcast and conference call. The synchronized slides that accompany this call can be found at MPLX.com under the investor tab.

On the call today are Gary Heminger, CEO and Chairman of MPLX; Pam Beall, President of MPLX; and Tim Griffith, Chief Financial Officer. Also joining us are other members of MPLX's executive team.

We invite you to read the safe harbor statements on slide 2 and 3. It is a reminder that we will be making forward-looking statements during the call and in the question-and-answer session following that.

Actual results may differ materially from what is expected today. Factors that could cause actual results to differ are included there as well as in our filings with the SEC.

Additional disclosures appear on slide 4 as they are related to the announced business combination between MPLX and MarkWest. Investors and security holders are encouraged to carefully read the registration statement and joint proxy statement of MPLX and MarkWest when it's filed with the SEC and mailed to MarkWest unitholders, because it will contain important information about the proposed merger.

Now I turn the call over to Gary Heminger for closing opening remarks. Gary?

Thank you, Geri, and good afternoon. If you will please turn to slide 5, we were pleased to report adjusted EBITDA of $64.6 million in the partnership for the third quarter of 2015, generating distributable cash flow of $52.5 million. MPLX's strong performance during the quarter continues to support the growth in distributable cash flows of the partnership.

Based on this quarter's performance, our Board of Directors declared a distribution of $0.47 per common unit, which represents a 6.8% increase from the second quarter of 2015 and a 31.5% increase over the same quarter in 2014. MPLX has provided distribution increases in 11 consecutive quarters since the IPO. This represents a compound annual growth rate of 23.6% over the minimum quarterly distribution established at the partnership's formation in October of 2012.

Before I hand the discussion over to Pam, I wanted to provide an update on the pending combination with MarkWest. We look forward to finalizing our combination later this year. The SEC has granted our request to go effective on our joint registration statement and proxy statement, and we expect that the MarkWest special meeting will be in early December.

We believe the combined partnership's substantial organic growth profile, the large and growing drop-down inventory at our sponsor, the financial flexibility provided by our investment grade profile, and a strong sponsor creates a tremendous platform to grow distributable cash flow and long-term value that will benefit all unitholders.

MarkWest has $1.5 billion of annual average capital investment profile over the next five years to support producers' growing volumes, principally in the Utica and Marcellus. Although producers may be reducing or slowing capital investments in other shale plays, we expect Utica and Marcellus to continue to attract investment dollars given the relatively stronger returns in that region, even in the low commodity price environment we are now experiencing.

In addition to these robust organic growth opportunities, MarkWest has identified $6 billion to $9 billion of potential incremental capital investment opportunities which can be incubated at the MPC level to support the growth of the combined partnership. Included in the incremental capital opportunities are additional pipeline projects for NGLs and the potential construction of an alkylation unit. Such a unit would create incremental in-basin demand for butane, helping to solve the developing short octane situation in North America.

In addition, the partnership as supported by MPC's large and growing $1.6 billion inventory of MLP qualifying EBITDA, which is expected to be dropped into the MPLX in the future.

I also want to take this opportunity to congratulate MarkWest for its first-place ranking in EnergyPoint Research as 2015 oil and gas midstream services customer satisfaction survey. MarkWest continues to distinguish themselves in the marketplace through high levels of performance and continued attention to customer needs. This focus and attention to customer satisfaction will remain a key aspect of the combined partnership's culture and mission.

We continued to execute our strategy of accelerating the growth of the partnership and providing our unitholders an attractive distribution growth profile for an extended period of time. In July, when we announced the combination with MarkWest, the partnership provided distribution growth guidance through 2019. We remain committed to the growth profile provided in that guidance.

Given the significant change in master limited partnership valuations and the resulting higher yield environment the sector has experienced recently, we now expect drop-down transactions or some other form of sponsor support as early as 2016. Consistent with the previous guidance of a 25% compound annual distribution growth rate for the combined entity through 2017, we expect distribution growth of 25% in 2016.

I want to underscore the competitive advantage our combined partnership will have with MPC as our strategic sponsor. Having a strong sponsor that is committed to our success is one of the compelling features of an investment in MPLX. MPC can support the growth of the partnership in many ways that differentiates MPLX, especially during challenging capital market conditions like those we face today.

Now let me turn the call over to Pam to talk about some of the organic projects at MPLX and the continued growth of the backlog of MLP qualifying income at MPC. Pam?

Thank you, Gary. If you will turn to slide 6, I'm going to focus initially on the lower-right callout box.

We are pleased, with respect to the organic projects, with the progress on the Cornerstone Pipeline in particular, which originates at the MarkWest Cadiz, Ohio, condensate stabilization facility which you will see in that callout box. This pipeline will initially move condensate north to East Sparta, Ohio, where condensate can be delivered into MPC's Canton, Ohio, refinery. Or it could be moved east to Wellsville, where it can be loaded on a barge for river movement. We expect Cornerstone to be complete by the end of 2016.

Cornerstone, as you may recall, was upsized to be the first leg of an industry solution to move condensate and natural gasoline, potentially ultimately butane, out of the Utica and Marcellus to refining centers in northwest Ohio and to connect with pipelines taking diluent to Canada. From the map, you can see from East Sparta we could move south to Heath and then north back to Findlay, reaching pipelines that connect to the refining centers in Northwest Ohio.

So we're continuing to develop these proposed Cornerstone buildout projects, which include expanding some of these existing MPC and MPLX pipelines down here on the graph -- the map and building some new connections and additional storage capacity at certain locations to handle multiple products. We plan to provide more detail on the buildout at our investor meeting in December.

We are progressing well on our new 1.4 million barrel butane storage cavern at Robinson, Illinois, and we are in completion of the Patoka, Illinois, tank farm expansion. That tank farm expansion increases our storage capacity for MPC by 1.24 million barrels. The additional revenue from these tanks is structured as a fee-for-capacity contract. The new tanks will support the startup of Southern Access Extension pipeline, which is expected to commence operations by the end of the year.

As Tim will review shortly, we expect to finish the year under original capital plan of $260 million due to lower-than-projected costs and timing of spend. In addition to the organic investments at MPLX, the sponsor continues to take steps that will grow with the backlog of MLP-qualifying EBITDA and extend the life of its drop-down inventory.

An example is the recently executed ocean vessel joint venture between MPC and Crowley Marine. MPC acquired a non-operating interest in the joint venture, which will purchase newbuild Jones Act tankers, most of which will be leased to MPC, to deliver transportation fuels from its Galveston Bay and Garyville refineries to Florida and other US coastal markets. Today MPC charters all of its ocean movement to transportation fuels, so this joint venture will allow MPC, and ultimately MPLX, to own a portion of the vessels used to move MPC's product rather than using third-party assets. This is an opportunity that we see in other areas to move third-party services to MPLX over time.

So with that, let me turn the call over to Tim to provide an update on our financial results for the quarter.

Thanks, Pam. The bridge on slide 7 shows the change in net income during the third quarter 2015 on 100% basis compared to the third quarter of 2014, as well as the adjustment for the small interest retained by MPC. Net income decreased period over period, primarily due to $4.3 million acquisition costs incurred during the quarter for the pending MarkWest combination, which are included in the $5.8 million in general and administrative expenses as well as higher interest costs attributable to the new debt issued to fund the pipeline holdings acquisition in December of last year.

Partially offsetting these impacts are higher transportation revenue attributable to tariff rate increases and an increase in throughput volumes in the quarter. The $4.3 million of acquisition costs have been added back to adjusted EBITDA and distributable cash flow for the quarter, given the unique nature of these expenses.

Although not shown on this slide, net income attributable to MPLX increased $12.4 million from the third quarter of 2014, which was primarily due to an increase in MPLX's ownership interest in pipeline holdings and higher transportation revenues, partially offset by the higher expenses just mentioned.

Just a note on the $300,000 of MPC's retained interest on the slide. This amount represents MPC's remaining 0.5% ownership interest in MPLX Pipeline Holdings. The MPLX Board approved acquiring this remaining interest in pipeline holdings yesterday, which will happen concurrent with the completion of the MarkWest combination.

Turning to slide 8, distributable cash flow for the third quarter was $52.5 million compared to $61 million of distributable cash flow for the second quarter of 2015 and $32.9 million for the same quarter last year. The $8.5 million decrease in distributable cash flow compared to the second quarter 2015 was primarily due to lower income at the partnership, largely driven by higher outside service expense in the third quarter due to improved weather conditions, which enabled more project-related work and higher maintenance activity in the quarter. The $19.6 million increase compared to third quarter last year was primarily due to MPLX's greater ownership in pipeline holdings.

Total distributions for the third quarter were $46.5 million. This represents a coverage ratio of 1.13 times, which is consistent with our target coverage of 1.1 times. As a result of the consistent increases in distributions, we have also moved out of subordination for the units held by MPC.

Slide 9 provide a historical look at adjusted EBITDA and distributable cash flow by quarter for MPLX since the formation of the partnership and continues to demonstrate our focused growth in earnings and distributable cash flow over time. The strategic combination with MarkWest provides a tremendous platform to step function the size of the partnership and continue this growth in cash flows over an extended period of time.

Slide 10 provide some selected balance sheet information. At the end of the third quarter, we had just over $90 million of cash and the full $1 billion available on our bank revolving credit facility. Earlier this week we completed the prospective amendment to our revolving credit facility, increasing the available capacity to $2 billion to accommodate the needs of the combined partnership after close.

This liquidity, along with our ability to access the public equity and debt markets and pursue funding opportunities with our sponsor, allows us to invest in growth opportunities that expand the growing base of distributable cash flow including organic growth opportunities identified as part of the combination with MarkWest.

Consolidated total debt to consolidated EBITDA of 3.1 times was well below the covenant maximum of 5 times. Upon closing the combination with MarkWest, we expect MPLX will assume all of MarkWest's debt including the repayment of amounts outstanding on their revolver with funds from our amended revolving credit facility. The target leverage ratio for the combined partnership will continue to be about 4 times debt to run rate EBITDA, consistent with our intent to maintain an investment-grade credit profile for the long term.

As Pam mentioned, we expect our 2015 capital spending to decrease to approximately $210 million from the $260 million in our original 2015 budget. Included in the revised spending is $178 million for expansion capital and $32 million for maintenance capital. This budget reduction does not change the projects we are pursuing, nor the dates the projects are expected to be completed, but rather is due to lower-than-projected costs on the projects and the actual timing of spending.

Slide 11 demonstrates our commitment to grow and distribute cash flow to our unitholders. The bars illustrate our distribution history since the IPO and highlights the strong and consistent growth on LP distributions. MPLX's third-quarter 2015 distribution of $0.47 per unit represents a 31.5% increase over the third quarter of 2014 and a 23.6% compound annual growth rate over the minimum quarterly distribution established at the partnership's formation.

As Gary mentioned earlier, we expect a 25% increase in LP distributions for the combined partnership in calendar 2016, consistent with our prior, and now reaffirmed, guidance. This significant growth will provide attractive returns for both current and prospective MPLX unitholders and we believe the long-term holders of these units will benefit substantially.

Before I turn it back over to Geri, I wanted to highlight our plans for our analyst day. Due to the timing of the MarkWest special meeting for the proposed combination, we are moving our analyst day meeting back one day to December 3. At that time we'll provide an update on the MarkWest combination, our capital allocation plans, and other important developments for the partnership. We look forward to sharing additional details about our near-term strategies and hope you can join us.

With that let me return the call back over to Geri. Geri?

Thanks, Tim. With that, we are now prepared to open the call for questions. I will turn it back over to Corey.

(Operator Instructions) Brian Zarahn, Barclays.

Good afternoon. Can you elaborate a little bit on the sponsor support for next year? Obviously, you have a lot of options and a lot of tools, but would a drop-down with a multiple lower than history be a more likely scenario? Could you just help us through the thought process of how we look at the different support options?

Brian, this is Gary. That is certainly one of the options that we would have. And let me be clear; I had some questions earlier this morning on dropping down now that we are giving some guidance that we may drop-down as early as 2016.

It has nothing to do with the organic growth rate inside of MarkWest, nor the organic growth rate inside MPLX. It just is all based on the yield that's out in the marketplace today. So those projects and the run rate still is very good.

But a lower multiple is an option. IDR givebacks, loans, intracompany loans; we have many, many different options. The most important thing, though, is just the compelling business logic that in order to be able to grow at MPLX, and in fact in order to be able -- for MarkWest to be able to do those projects going forward, we need a strong sponsor and a strong balance sheet. The sponsor of MPLX is certainly in a great position with a very strong balance sheet in order to be able to do that.

Given that your CapEx -- pro forma CapEx plans don't seem to have changed, how should we think about projects being done at the MPLX level versus MPC next year? And then, going forward, if we are still on the similar type of capital market environment?

Well, we have said for some time that it would be our plan and we think makes the most sense -- again now this is talking -- I'm answering the question for MPLX. But as we've talked to the sponsor of MPC, it could make sense to put -- to incubate a lot of projects inside MPC, be able to use their balance sheet, and then you monetize those and bring them into MPLX at the right time.

So that's not using up all their capital in order to be able to grow the business. We are certainly looking at that and I'll ask Tim to add on to my statements.

Yes, Gary, I think that's right. And, Brian, maybe the most important part is that there are a tremendous amount of options to us available with the sponsorship relationship. So if it makes sense to fund things at the MPC level and potentially make it available to the partnership later, that could work.

Funding things at the partnership and potentially providing some intercompany funding or other arrangements with the sponsor could be an option, but in environments like these, we think there's a tremendous benefit to having a strong sponsor to have that level of flexibility.

So we will determine at the time what's most appropriate. I think the important part for the partnership is that our intent will be to not pass on very nice growth opportunities for it. We'll figure out how to sort of make that work depending on the circumstances at the time.

So a possible scenario would be that there would be no organic spending related to MarkWest at MPLX next year is a possibility without -- and that spending would be incubated entirely at MPC. Is that a possibility?

Again, we have again this morning affirmed the growth guidance, so I think we will be very mindful that we deliver on those commitments with regard to the growth profile of the partnership. But again, we have a multitude of options in terms of how that growth is funded.

Again, I think really the key is that we do not want to pass on good growth opportunities that help to expand the infrastructure or help to deliver into markets where the producer customers could benefit or where there is a natural supply/demand imbalance that can be solved through a lot of the investments we make. Again, we will solve that as we go. The market conditions that exist today make funding MLPs more challenging and it's exactly the environment where you want to have a relationship that you can lean on in a very flexible way.

Brian, it would certainly be our intention to continue on with organic projects, as Pam just outlined here, with Cornerstone pipeline, our butane cavern, and the projects that MarkWest has, as we will review their budget right after the vote is done. We would expect to continue on and have a very strong organic program.

Appreciate the color. I promise just one more financing-related question. For the MPLX equity financing that you expect for next year, would MPC be willing to take some of the LP units?

Yes, certainly -- well, Tim should answer that question. This is Pam, but we have actually demonstrated the (technical difficulty).

Okay, thanks very much.

Kristina Kazarian, Deutsche Bank.

Afternoon, guys. On the organic growth side, which I know, Pam, you were talking about earlier, when I'm thinking about the upcoming analyst day, how much incremental do you think there is -- and I'm not asking for a projects or you tell me what's happening at the analyst day. But is the strategy to talk about projects that you've actually identified specifically in that $6 billion to $9 billion?

Like, Gary, I know you talked about the NGL -- potential for a pipeline for NGLs and an alky unit, but is that going to be the strategy going forward to start outlining some of these things?

Yes, it will be, Khristina. That's going to be front and center for MPLX, the midstream part of our review (technical difficulty) that really provide a little more color around some of these opportunities.

I think that would be really helpful. And then on the NGL pipe, is that the Centennial project that MPC and EPD are talking about? And how should I maybe be thinking about an update on that project?

Kristina, I would say that we really are evaluating a number of options to get either to the East Coast or the West or the Gulf Coast. And I would say there are no fewer than three different options going east and probably about as many going to the Gulf Coast.

There are competing opportunities that we are evaluating at the same time; may be able to give a little more color on that at the time that we have our analyst meeting. But it's like solving a lot of multiple linear programs at the same time trying to figure out which route might be the best and most economic.

Then did I hear correctly that the proxy is likely going to be out today or tomorrow and then the vote date would be actually prior to the analyst day?

We are effective today. We expect mailing to commence (technical difficulty).

We would expect the vote to be on December 1.

Okay, sounds great. Are you guys using --? I think, Gary, you mentioned earlier you are using a proxy solicitor. Do you guys have any clue on or know -- have a sense yet on how many MWE shares are held on swap or how you are going to deal with that, which may be a newer concept that you've got to deal with in these types of votes for you guys?

We don't have the percentage, Kristina, but we certainly have a game plan and are following that through as we speak.

Sounds great. Nice job today, guys.

Jeremy Tonet, JPMorgan.

Good afternoon. Just wanted to clarify a point that you had said earlier. Is it right that the MarkWest debt will be assumed by MPLX and you expect the credit ratings to be equalized with those of MPLX? Did I catch that right?

That is our expectation, Jeremy. This is Tim. Nancy and I had a chance to visit with the agencies even before the transaction was announced and share with them our plan and what the pro forma partnership would likely look like. They provided at that time a prospect of affirm on the rating of MPLX and we would expect that upon consummation that those would become actual ratings.

And our expectation would be that MPLX will assume all the debt of MarkWest and it will effectively become part of the new debt total.

Great, thank you. Then just to confirm, I think you are basically saying, as far as what you see with the combination now versus what you saw earlier in the summer when it was first proposed, there's no change as far as synergies or growth opportunities as you envisioned it at that point. Strictly what you talk about today is really just a change in cost of capital and kind of back solving with that change to hit the growth targets that you guys had outlined before. Is that the right way to think about it?

I'd say that's spot on, Jeremy.

I would say, if anything, the more closely we have worked with MarkWest, the more excited we are about the opportunities to pursue commercial synergies across the value chain, the more excited we get about those opportunities.

Great, thanks for that. Then one last one. If I just look at the MPLX base operations and I look -- this year quarter by quarter $64 million EBITDA first quarter, $71 million last quarter, $65 million this quarter. Could you help us think through what some of the gives and takes were that moved the number around? Was it refinery turnarounds or what not?

What is kind of a -- how should we be thinking about what a normalized quarterly rate for you guys is at this point?

Jeremy, one of the biggest factors that drives the volumes for MPLX are the sponsors' operations. And so, as different plants go in and out of different kinds of maintenance, that will certainly have an impact on volume.

Our sponsor does not give a forward look beyond a quarter when it comes to turn around and maintenance activity, but that certainly is one of the biggest factors that influences the volume. And certainly 2015 has been a good year for the sponsor. There has been a little less turnaround activity than the prior year, and that would impact both the crude and then the product pipelines.

One thing that we've talked about before is the fact that the sponsor has increased exports of refined products and that has moved some of the volume off the pipes. There's volume deficiency payments to support that as well. That certainly is one of the factors.

And of course, this quarter in particular there was $4.3 million of combination (technical difficulty) related costs in the results.

Jeremy, the other part on the cost side is obviously the partnership, given its operations and geographic setup, is subject to the seasonal fluctuations around when maintenance work can be conducted and when those costs are incurred. That will vary throughout the course of the year and that's a contributor to some of that variation as well.

Okay, great. Thanks for the color. That's it for me.

Shneur Gershuni, UBS.

Good afternoon, guys. I guess I will return to the financing questions again.

I'm kind of curious; when you -- in your comments about moving forward the drop-downs into 2016 and providing the support for MPLX, you cite the higher yield environment and the cost of capital and so forth. And I think you sort of answered this with respect to Jeremy.

So is it that the organic projects that you are pursuing right now, the returns are lower as a result of the higher cost of capital with assumed equity issued at these levels? I'm just -- it sort of seems curious about the whole move to move the drops forward and so forth. Is anything delayed at all or returns have changed? I was wondering if you could sort of talk to that a little bit.

No, it's all -- as I said earlier on this call, it's all yield driven. The organic projects are coming along fine; the capital budget, the timing of those projects is fine. We are being very conservative as we look out into the next few years as the entire industry.

And I reiterate what I said this morning, that I believe when you look at MPLX being, if not the top, one of the top growth profile MLPs in the business -- so we're taking a G&P business, combining it with a very, very high growth drop-down story. At the end of the day everything is going to be measured on how much EBITDA you have and how fast you can grow. And we've reaffirmed guidance.

We're being conservative to say, looking at this new yield environment, conservative on how we see the timing possibly coming into 2016 of a drop-down. But at the end of the day, it all depends on where the yield moves.

We are very confident in our story, very confident in the growth profile we've put forward, but I'm also confident that the market will start to value this combination like it should be valued. And that's significantly less of a yield than where it stands today.

I guess where I get a bit confused here is I assume a project gets funded 50% debt, 50% equity and you're basically saying the cost of equity has almost doubled or has gone up quite a bit over the last little bit. But I assume that some of these projects that you are thinking about were MarkWest-generated projects and their yield was always higher initially.

So I guess that's what I'm confused about is you were expecting excess returns there. The IRRs were supposed to be higher; they're now a little bit lower because of the units. That's sort of where I am -- the angle I guess I'm approaching it from.

This is Tim. Again, whether the project is organic or drop-down, the yield environment impacts the funding of those projects in either case. So I think as Gary said, the big change that we have seen from the time the transaction was announced is that, in an overall higher yield environment, obviously there's the amount of units put out to fund any single dollars grows and it just sort of changes the perspective on what's required to fund any given level of distribution growth. It's far less a function of the underlying organic projects themselves and more about just how they get funded, whether they are organic or otherwise.

Just to add to that, we are very disappointed with where the units are trading, both MarkWest and MPLX, and we think that once we get past the vote we have -- we are very thinly traded. Once we get past the vote and begin to deliver what we said we will deliver that we would expect that the yield will improve, but the guidance really is based on what we see today and the fact that the yields are much higher than where we think they deserve to be.

We think that this combined company deserves to trade at a much lower yield, and we believe that it will.

Okay. In one of your other responses you had mentioned potentially the use of intercompany loans and so forth. Does it make sense from a tax perspective to build organically 100% in MPLX so you don't trigger any gains and potentially use intercompany loans? Is that kind of an approach that you're thinking about when you talk about supporting organically?

Those are both options that are on the table. Again, the amount of flexibility that is afforded by a sponsor that could support that activity is fantastic either in the form of incubation, in the form of direct equity investment in the partnership, in any other financing structure that makes sense. This is a market environment that obviously is far less attractive to raise money than it was even six months ago, but with a sponsor we've got lots of options.

Intercompany funding with incubator projects is certainly one of the things that would be an option for us.

Okay. Finally, I think Pam had just mentioned that you obviously are disappointed with the performance of the units. On a drop-down would it make sense from an MPC perspective to take back 100% of the units because you see upside in the future and so forth? Is that sort of how we should think about some of the support mechanisms you're thinking about?

That's a great example of the type of flexibility that we could take advantage of in this market environment.

Perfect. Thanks a lot, guys.

Faisel Khan, Citigroup.

Just a couple questions. On Centennial, I just wanted to make sure I understood. Is there any potential EBITDA from Centennial in the backlog that you guys have previously disclosed in the past?

No, that would be a future opportunity that would not be in the backlog.

Okay, understood. Then is it fair to say that the line is basically not earning anything? Is it completely idle right now?

It is an idle line today.

Is any decision around Centennial sort of -- is it mutually exclusive of what you guys decide to do or potentially decide to do with Capline? Or is it --? Are there any decisions that are related to Capline that could influence what you do with Centennial?

There's no decision, new decision around Capline. I wouldn't say it's mutually exclusive. If someday Capline were to flow north to south, Centennial could play in the south-to-north solution if that were to happen. But I would expect that we will have another solution for Centennial probably long before Capline would be reversed.

Okay, makes sense. Then just on SAX and Sandpiper. I think SAX is supposed to come online before the end of this year and Sandpiper comes online in 2017. So how do the crude volumes work?

I think initially SAX and Sandpiper were sort of slated to move Bakken into your refining system. Is it now just going to be substituted for Canadian crude right now and then eventually move to Bakken? How do you envision that sort of dynamic playing out?

Go ahead, Don.

Faisel, right now before Sandpiper comes on stream, we're going to have a combination of multiple crudes that would come down SAX, and that would include North Dakota. But it would also include Canadians, including heavy Canadian.

So early on, in the next year or two, we would expect that there would be multiple feeders to that pipeline. And then when we get to Sandpiper and it's in operation; you run into a situation where you just have more options in terms of what types of crude that you are going to feed through SAX.

But we are very confident in terms of the production profile in Bakken. Right now I want to say that production is 1.1 million to 1.2 million barrels a day. More than half of that is taken away by rail capacity, so there's clearly opportunities for a good pipeline or a project such as Sandpiper that not only will be good for MPC, but it will be very good for MPLX, because that's the type of investment that would be incubated at MPC and then moved into MPLX over time.

Okay, got you. Then just thinking about the credit capacity at MPLX, it's accepted -- to accept another drop-down outside of MarkWest. Do you guys have excess capacity on the balance sheet at MPLX to take out another drop-down without issuing units? How is the partnership structured right now?

Faisel, what we have indicated and we will sort of commit to over time is that we're going to maintain an investment-grade credit profile for the partnership. How we've thought about that, that represents about a 4 times run rate EBITDA leverage ratio. So you saw where we reported here for the quarter it's 3.1 times, so there clearly is some additional leverage capacity from where we sit today.

And obviously, to the extent there was another drop, I think our intention would be to move leverage up to what we think that long-term run rate level would be first and then issue equity or take back units or use whatever tool we needed to to fund the difference.

Okay, got you. I was just trying to understand how much slack you have on the balance sheet. So it sounds like you have some room to maneuver.

We do, absolutely. Now remember that obviously on a combined basis we will target that same leverage ratio. And I think where the MarkWest partnership is right now it's probably higher than where that level is, so we will look to bring it down over time and manage that profile. Some capacity exists now, but I would say it could sort of build up pretty quickly on the combination.

Okay, makes sense. Thanks for the time, guys. I appreciate it.

John Edwards, Credit Suisse.

Just a couple follow-ups to what's been asked. You were talking about returns on projects, separate from the financing decision. And just to confirm then; have you seen any changes on the returns on your project profile, given the market environment we're in?

Well, I think it's only appropriate for us to talk about the MPLX projects at this point, but for the MPLX projects, given that some of the costs have actually come in lower than we originally expected, I would say that is a positive trend for the returns. And they are structured in a way that MPC is going to continue to be the primary shipper on a lot of these projects. So we are highly confident in our ability to complete the projects and deliver the kind of returns that you would expect for these types of assets.

Probably the other thing, John, to really keep in the back of your mind, if you look at other assets that are available in the marketplace, still pretty strong demand for high-quality assets and the multiples that are being garnered in the marketplace still suggests that there is a requirement for some real high-quality assets. I think organic projects from the MPLX side, as Pam said, are doing fine, but you also need to step back from it and look at what's going on around the industry. It still appears to be robust.

And I will just make one observation: this is our observation of the opportunities for MarkWest in the Utica and Marcellus. The Utica and Marcellus, as Gary mentioned earlier, continue to take share from other basins. And that happens because it is one of the best shale plays in the country, if not the world, and it is going to continue to be an area where producers will want to put capital to work. And that means there is going to continue to be growth and infrastructure needed to support that development.

As you said, MarkWest continues to expect $1.5 billion a year on average of capital to be deployed and a lot of that is in Utica and Marcellus. So we think it's just a terrific opportunity. If people are concerned about growth, they should not be concerned about opportunity for growth in Utica and Marcellus. That is the area where people are going to shift their capital.

So I think that the investors are not really differentiating between those MLPs that are in really terrific sweet spots like MarkWest and those who maybe have greater exposure to other shale plays where the growth may not be as robust. So we continue to be very bullish about the prospects and the opportunities for growth for MarkWest in the Utica and Marcellus and our opportunity to help be a solution provider to help move NGLs out of that basin (technical difficulty) continued demand for the NGLs in-basin.

The color there is really helpful. Just as a follow-up to that, are you seeing any kind of a shift in the mix of the kind of assets? Say maybe more pipelines say relative to gas plants or vice versa, that kind of thing?

No, again, I think in terms of expectations, everything is going to be needed. All those assets are going to be required.

Okay. And then just remind me -- and if you commented on this earlier, I jumped on a little bit late so forgive me on that. But what's the drop-down EBITDA available now at MPC to MPLX?

We estimated that at $1.6 billion.

$1.6 billion, okay. And there's been no change to that irrespective of the commodity price environment and so on? That's just (multiple speakers).

If anything, it's increased a little bit.

Okay. Then just following on that, so you are indicating you may push forward a little bit the drop. You were talking about 2017 as dropping down. You may push some of that into 2016 depending on how the combination works, that kind of thing. Is that a correct understanding?

Yes, that's one of the possibilities, right.

Okay, great. Thanks for that. That's all.

John, as you fill out your coverage on us and get your model that will all become apparent.

Yes, okay. Thank you very much.

Tim Schneider, Evercore.

Thanks, guys. I had a follow-up question from something that was said on the call this morning. So you said -- and I get this isn't your base case assumption -- that if the deal doesn't go through -- it goes back to MPLX 101, so I just want make sure I think about this the right way.

So does this basically mean, look, these are the deal terms; you can either take them or leave them? We're willing to talk about some IDR waivers, some lower drops in 2016? Or do you think there's some room for those deal terms to change, the initial deal terms ahead of that vote?

You heard my response this morning very clearly.

Okay, got it. Thank you.

We have no further questions at this time. I will now turn the call back over to Geri Ewing for closing remarks.

Thank you for joining us today and thank you for your interest in MPLX. Should you have additional questions or would like clarification on any of the topics we discussed this afternoon, Teresa Homan and I will be available to take your calls. Thank you.

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