MPLX LP (MPLX) 2016 Q1 法說會逐字稿

Welcome to the MPLX first-quarter 2016 earnings webcast and conference call. My name is John and I'll be your operator for today's call. (Operator Instructions) Please note the conference is being recorded.

I will now turn the call over to Lisa Wilson, Director of Investor Relations.

Thank you, John. Good morning and welcome to the MPLX first-quarter 2016 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 Gary Heminger, Chairman and CEO; Frank Semple, Vice Chairman; Don Templin, President; Nancy Buese, Chief Financial Officer; and other members of the management team.

We invite you to read the Safe Harbor statements and non-GAAP disclaimer on slide 2. It's a reminder that we will be making forward-looking statements during the call and during the question-and-answer session that follows. Actual results may differ materially from what we expect today. Factors that could cause actual results to differ are included there as well as in our filings with the SEC.

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

Thanks, Lisa, and good morning. If you'd please turn to slide 3, we delivered solid financial results in this first full quarter as a combined Company and are executing on the plans we laid out for 2016. Adjusted EBITDA was $302 million, and distributable cash flow was $236 million.

Last week we announced an increase in our quarterly distribution to $0.505 per common unit, while maintaining a strong coverage ratio of 1.18 times. We also reaffirmed our distribution growth guidance of 12% to 15% for the full-year 2016 and expect a double-digit distribution growth rate in 2017.

Yesterday we announced a binding agreement for a $1 billion private placement of convertible preferred securities with a select group of investors. While this transaction was originally contemplated with MPC, we elected to take advantage of strong investor interest in equity securities, with attractive terms for the Partnership. The combination of some opportunistic ATM issuances in the first quarter along with this transaction provides for our anticipated funding needs for the remainder of 2016 and into 2017, therefore enabling us to continue our execution of attractive organic growth projects that will contribute to distributable cash flow and long-term value for our unitholders.

We are committed to pursuing a strategy that balances capital investments to meet the needs of our customers with the sustainable growth of the Partnership. In response to market conditions, we previously announced a substantial reduction to our 2016 capital investment plan; and we remain focused on managing both capital and expenses across the business.

Another example of how we're executing on our 2016 plans is the acquisition of MPC's inland marine business, which took place in the first quarter. MPC clearly demonstrated its commitment to the success of the Partnership, as we acquired the marine business at a supported valuation in exchange for MPLX equity, eliminating the need to access the public market to fund the transaction.

In addition, MPC provided another measure of support by waiving first-quarter distributions and IDRs on the issued common units, in exchange for the marine business. Upon completion of this acquisition, our sponsor still retains an inventory of $1.5 billion of MLP qualifying earnings, which we expect to be made available to the Partnership over time.

With strategically located assets, a supportive sponsor, and strong relationships with our customers, we are well positioned to deliver on our 2016 plans and to continue delivering sustainable returns well into the future. Now let me turn the call over to Don to review our strong quarterly operational results. Don?

Thanks, Gary. Turning to slide 4, you'll see information for our Logistics and Storage segment. A key highlight during the first quarter was the acquisition of MPC's inland marine business.

These high-quality assets are backed by a fee-for-capacity contract with MPC and are expected to generate approximately $120 million in annual EBITDA, of which three-quarters would be recognized in MPLX's 2016 EBITDA, based on the timing of the transaction. The marine business further diversifies our earnings mix and provides us with another source of stable cash flows.

During the quarter, we also commenced construction of the Cornerstone pipeline and anticipate placing it into service by the end of this year. The pipeline will transport condensate and natural gasoline produced in the Marcellus and Utica to MPC's Canton refinery in Ohio.

We continue to pursue our larger Utica buildout strategy, which has the potential to deliver liquids produced in the Northeast to refineries in the Midwest and pipelines to Western Canada. Together with MPC, we have the ability to accelerate and lead the development of market access, by expanding existing pipelines and connectivity and completing additional storage capacity. Our Utica strategy is a great example of commercial synergy projects that connect our leading midstream position in the region with MPC's downstream operations.

Included in our highlights for the L&S segment was an expansion of the Patoka-to-Robinson pipeline, which adds 20,000 barrels per day of crude oil supply capacity to MPC's refinery in Robinson, Illinois. This expansion was completed in conjunction with a light crude upgrade project at the refinery, further illustrating our strong relationship with MPC.

Shifting to our Gathering and Processing segment, slide 5 provides an overview of our operations in the Southwest where we have diversified Gathering and Processing assets across established resource plays. During the first quarter we processed over 1 billion cubic feet per day, and processing plant utilization increased to 82%.

For the full-year 2016, we forecast processed volumes in the Southwest to increase by approximately 15% and gathered volumes to increase by approximately 5%. Growth will be driven by expanded producer activity in our East Texas operations, the further development of infrastructure to support Newfield's STACK play in the Cana-Woodford shale and the addition of our new Hidalgo Complex in West Texas.

Moving next to our operations in the Marcellus and Utica, slide 6 illustrates the productivity of this region. While other US gas basins are in decline, the Marcellus and Utica continues to grow, and our producer customers are an integral part of this growth.

Currently, these plays account for over one-quarter of US gas production, at over 23 billion cubic feet per day. And over one-third of total gas rigs in the US are in the areas of the Marcellus and Utica where we operate.

On slide 7 is a summary of our Gathering and Processing operations in this region. Processed gas volumes reached almost 4.3 billion cubic feet per day during the first quarter, a 9% increase over the previous quarter. As a result, utilization of our facilities also continues to improve, averaging 81% in the first quarter.

Producer customers continue to adapt to market conditions, and we are working closely with them as their plans for rich gas development evolve. We anticipate Marcellus and Utica process volumes to increase by approximately 15% over the prior year.

In addition to our leading processing infrastructure, we have an extensive gathering footprint throughout the region. We expect gathered volumes of rich and dry gas in the Marcellus and Utica to increase by approximately 30% over the prior year. The primary driver of our gathered volume growth is occurring from the highly prospective dry gas areas of the Utica shale.

Along with Gathering and Processing, we are the largest fractionator in the Marcellus and Utica, handling the majority of liquids production in the region. On slide 8 we have provided a summary of our NGL fractionation volumes, which are expected to increase by approximately 25% over the prior year.

We produced nearly 280,000 barrels per day of purity products in the first quarter, an increase of 9% over the prior quarter. Our growth was driven primarily by the recovery of additional ethane.

In March, ethane recovered from our facility supported the first-ever waterborne ethane shipment, from the Eastern seaboard to a petrochemical complex in Norway. This historic event marks the start of large-scale waterborne exports from the US.

Our facilities are also the origination point of the Mariner West and ATEX pipelines, which provide producer customers with the flexibility to access major North American petrochemical markets. As new world-scale petrochemical facilities are completed in the Gulf Coast and potentially the Northeast over the coming years, ethane sourced from the Marcellus and Utica will be an important feedstock to meet this growing demand.

For the heavier portion of the NGL barrel, we are leading the development of efficient solutions in the Marcellus and Utica to maximize netback prices for our producer customers. We now have the scale with our NGL fractionation and logistics facilities to be able to load and deliver unit trains bound for demand markets outside the Basin.

In March we delivered the first unit train of propane from our Hopedale complex to delivery points in the Mid-Continent. Being able to load unit trains brings efficiency to the marketing of NGLs by lowering rail transportation costs, which improves differentials for producers.

We also remain focused on driving the development of longer-term NGL solutions that will increase the basin's connectivity to both domestic and international markets as well as enhanced local demand. These solutions include an NGL export terminal from the East Coast, participation in long-haul pipeline projects to the Gulf Coast, and a butane-to-alkylate project, all of which will provide producer customers with optionality and flexibility for their future NGL production.

That concludes our operational summary, and now I'll turn it over to Nancy to review our financial position and strategy.

Thanks, Don. Slide 9 provides a summary of our capital expenditure program for 2016. Our organic growth forecast remains in a range of $800 million to $1.2 billion, and we expect maintenance capital to be approximately $60 million.

The midpoint of our CapEx range represents a decrease of approximately $650 million from our initial 2016 forecast of $1.7 billion. We continue to aggressively manage our capital expenditures and work closely with our producer customers.

Our focus remains to complete projects on a just-in-time basis and to continue to increase utilization of our existing facilities. Throughout the course of 2016, we'll continue to evaluate our capital spending program and seek to optimize our investments as we take into account the forecasted changes in our producer drilling activity and the infrastructure needed to support our customers' drilling growth plans.

Turning to our financial highlights on slide 10, we reported adjusted EBITDA of $302 million and distributable cash flow of $236 million for the first quarter 2016. Total segment operating income attributable to MPLX was $345 million for the first quarter.

Strong volume growth in our Gathering and Processing segment continues to drive operating income, in addition to higher throughput volumes and tariff rate increases in the Logistics and Storage segment. We forecast fee-based net operating margin of approximately 95% for the full-year 2016.

The bridge on slide 11 shows the change in adjusted EBITDA from the first quarter of 2015 compared to the first quarter of 2016. The prior-year quarter we increase adjusted EBITDA by $238 million. The addition of MarkWest operations accounted for nearly all of this increase, while higher tariffs and pipeline throughput volumes accounted for the majority of the remaining change.

Slide 12 provides a key summary of financial highlights and select balance sheet information. At the end of the first quarter, we had $1.67 billion available on our revolving credit facility and $62 million available on our intercompany loan with MPC.

We remain committed to maintaining an investment-grade credit profile, and during the quarter our investment-grade status was reaffirmed by one of the rating agencies. We continue to target a leverage ratio of around 4.0 times by the end of this year.

Our consolidated total debt to pro forma adjusted EBITDA ratio was 4.3 times at the end of the first quarter. We expect to continue reducing leverage by growing our EBITDA, and we do not anticipate increasing our net debt in 2016.

As Gary mentioned, yesterday we announced the financing of $1 billion of convertible preferred securities with select third-party investors. Completion of this transaction, combined with approximately $300 million of opportunistic ATM issuance during the first quarter, fulfills our anticipated funding needs for the remainder of 2016 and into 2017.

On slide 13, we reaffirm our 2016 forecast, which is based on our expectations for producer volumes, forecasted commodity prices, and our strategy of deploying capital on a just-in-time basis. Excluding the impact of the goodwill impairment recorded in the first quarter, 2016 net income remains in a range of approximately $325 million to $485 million; adjusted EBITDA remains in a range of $1.25 billion to $1.4 billion; and DCF remains in a range of $970 million to $1.1 billion.

We have a strong record of growing distributions to unitholders. Based on our quarterly financial performance, the Board of Directors of our General Partner declared a distribution of $0.505 per common unit.

First-quarter 2016 distribution represents a 23% increase over the same period last year and marks the 13th consecutive quarter since our IPO in October 2012 that we've increased the distribution. We reaffirm our guidance of a 12% to 15% distribution growth rate over the prior year, and we expect a double-digit growth rate in 2017.

We target a long-term distribution coverage ratio of 1.1 times and reported a strong coverage ratio of 1.18 times for the first-quarter 2016. We are well positioned to manage through the current environment and remain focused on execution and achieving our financial and operational targets.

MPLX is one of the largest gas processors and fractionators in the United States and has an expansive crude and refined product logistics system. This provides us with an exceptional opportunity to continue pursuing high-quality organic growth projects. Combined with a compelling backlog of synergistic projects with our sponsor and the ability to pursue high-quality acquisitions, we look forward to successfully demonstrating the unique competitive advantages available to our Partnership.

Now I'll turn the call back over to Lisa.

Thanks, Nancy. As we open the call for questions we ask that you limit yourself to one question plus a follow-up. You may re-prompt for additional questions as time permits.

With that we will now open the call for questions. John?

Kristina Kazarian, Deutsche Bank.

Hey, guys. Great deal on the preferred. Just a couple -- a quick question on this one first. Did you guys preview this deal with the rating agency? Or is there any color you guys could give me on how they're going to account for how much equity credit? And just general thoughts on that first.

Sure, Kristina. We absolutely talked to the rating agencies all throughout the process and previewed every piece of this with them. Our understanding from them is we will receive 50% equity credit on the transaction. And that's from all three agencies.

Sounds great. Then limiting it to two, my second one is going to be about just the Northeast. I know NGL pricing uplift has become a theme du jour recently, so can you just -- I think you guys touch such a high percentage of Northeast NGLs, can you offer some color on what you're thinking of here and translate that into numbers we saw in the slide deck?

I think it looks like it's 15% versus 20% now on processing guidance; and frac came down a little bit as well. So just that would be great.

Yes, absolutely. Happy to talk about that. Yes, Marcellus volumes are continuing to grow, and we are seeing quarter-over-quarter increases there. We are also seeing in the Utica a little bit more in terms of the dry gas volume; those are continuing to go up.

You did see a slight decline in processed and fractionated volumes there. But it is also relatively small numbers at this point in time.

But gathering in the Utica is increased because of Gulfport. We also brought our Jefferson County gas project online to support Ascent Resources.

So there are some good things going on there. So fundamentally we will see volume increases, although we have slowed that down a bit in terms of a forecast, as you've noted.

Yes, Kristina; this is Don as well. We are very encouraged by the strength of the business and the Marcellus and the Utica. As you know, we are very much tied to what our producer customers are doing.

So they manage their portfolio dynamically. I think the fractionated volumes and the process volumes may be seeing a little bit of downward movement there; but the gathered volumes have been incredibly strong, and that's actually offset any of the downward movement in the other.

So a very dynamic time. We are encouraged by the improving NGL prices. I think our producer customers are very encouraged by that.

We are also very committed to working on projects that allow them not only to realize the improvement in the NGL pricing, but to reduce the differential, the Basin differential that currently exists. We've spent a tremendous amount of time working on those projects, and we are making very good progress on them.

Perfect. Thanks, guys, and nice job on the preferred again.

Jerren Holder, Goldman Sachs.

Good morning. Just wanted to start off with -- just given that the drop-down has been done to date about $1.3 billion worth of equity through the preferred and ATM so far, how should we think about, I guess, expectations for further sponsor support for the remainder of the year, and I guess into 2017?

Sure. I think that one of the things that we thought was really important about the convertible preferred was to take off, if you will, any potential overhang or concern around our ability to grow our business and to fund our business in an appropriate manner. We're very pleased with the sponsor support that we received around the marine drop. It's a fantastic transaction for MPLX; we are very excited about the assets that we have there.

In terms of our core business, as I mentioned when Kristina asked her question, it's very sound. So our expectation is that we will be supporting a substantial amount of our growth and our distribution growth through organic projects.

The great thing about having a sponsor like MPC is that there are opportunities, if you would like, to supplement that growth. We've always anticipated that there would be some acquisitions that we would be making over time. We expect to grow our core business through organic growth; but we would expect to be making acquisitions over time, whether they are third-party or from the parent sponsor.

So I'd say core business is the priority right now. We have an opportunity to access or to be supported by MPC. But I think we're very comfortable where we sit looking into 2017.

Thanks. I guess as a follow-up, with the 2016 equity funding largely done and some pre-funding for 2017, should we expect further opportunistic pre-funding of the 2017 CapEx program through ATMs or anything else for the remainder of the year?

Yes, you've got it just right. With the $300 million of equity raise in the quarter as well as the $1.0 billion on the convertible preferred, we really have taken away our financing needs for the balance of the year. However, depending on how market conditions continue to evolve over the course of the rest of the year, we'll certainly be opportunistic as we think about pre-funding further into 2017.

Okay, great. Thank you.

Jeremy Tonet, JPMorgan.

Hi, good morning. It's actually Andy for Jeremy. Thanks for taking our question.

The first question is, we saw the guidance for Marcellus/Utica processing volumes touched a bit lower for 2016. Might that push back the timing of some of the G&P projects slated to be in service for 2017?

Yes, absolutely. That's what you are seeing with the -- as a result of our capital expenditure program. As the producer volumes get moved out at times you'll see our spending follow suit. We can wait longer to bring projects online.

You'll see that through increased utilization. We're maximizing all the capacity at our existing facilities, and we won't be bringing on new capacity until it's needed.

Okay. But incrementally, from the last time you provided an outlook and an update on those volumes and CapEx, nothing's really changed; this is just updating --?

That's right.

Okay, got it. Then the follow-up to that is on CapEx for Cornerstone. Can you remind us how much that project is costing in total, and then how much is left to spend between the second and fourth quarters of this year?

And then also, how can we think about the EBITDA ramp-up into next year? And then lastly, is MPC the only counterparty? Sorry about the three questions in one.

Yes, on Cornerstone, the total CapEx will be a little over $200 million for that project. We expect to have that project online by the end of the year.

Originally, MPC had made the initial commitment on volumes. If you recall, in terms of how we arrived at this project, it started off as solely an MPC project to move condensate from the Utica/Marcellus area to the Canton refinery. As we were thinking about the project, it became more clear to us that we could provide an industry solution that seemed to make a lot of sense, and we expanded the size of the pipeline.

So over time we would expect that there would be third-party volumes. But in the early phases of the business or the operation, we expect that it's predominantly to move condensate on behalf of MPC to their refinery.

Eric Genco, Citi.

Hi, good morning. I just wanted to follow up on a couple of questions. Just I guess the takeaway options for NGLs for the Marcellus and Utica, you mentioned the unit train and improving basis differential there. I was just wondering if you could touch on how that is improving the basis differentials, if you could put some number on it.

And then also I guess long-haul to the Gulf Coast, you mentioned that as being a potential solution you were looking at. Is that something you can expand on a bit?

Sure. This is Don. In terms of the railing to the East Coast, that project is advancing very well. Our expectation is that we would load unit trains at our Hopedale facility. You probably saw or heard in our comments that we were able to load our first unit train in the first quarter, which gives us all sorts of confidence and should give our producer customers confidence that we are able to do that on a regular basis.

The expectation is that we would move that propane to the East Coast. It would then be exported to international markets. We have not provided publicly information on the uplift, but our expectation is that it should be substantial.

Okay. As a quick follow-up, I'm just wondering if maybe we should read into that anything. I guess Majorsville VII was originally scheduled for 4Q 2016, and then it was 2017, and now it's TBD. Are there any incremental concerns?

Is that in any way tied -- we know ME 2 was delayed a bit the last time through. Are you hearing anything different there, or is it anything that concerns you? Is that tied to ME 2, or are we reading too much into it?

I think you're probably reading too much into that. We are big fans of ME 2 because we think that's an important gateway or ability to take away NGLs from the Basin. So we are very supportive of that project; but we also think our rail project is a very good project and one that is necessary to ensure that we are meeting the timing and the needs of our producer customers. But I don't think anything should be read into that.

All right. Well, thank you very much for your time. Really appreciate it.

John Edwards, Credit Suisse.

Yes, good morning, everybody. Just a couple follow-ups here. On the volumes that you are expecting to deliver outside the region, could you give us any detail on that? I think you indicated both the unit trains as well as volumes on ethane export expected.

John, I don't think we've given that type of information yet. Clearly we are interested in making sure that we're evacuating the Basin. But that will in some regards be dictated on pricing and where our producer customers can get the best netback.

Okay. Then the unit train volumes here, in a way you're alluding to the fact that you've got competition from ME 2. Is it the intention here for these to be complementary, or what's the thinking there?

Well, think it's important that our producer customers have multiple ways to get to markets. So the unit train project is offering a solution to our producer customers.

The second thing about it is that it is very flexible. We can ramp up or ramp down volumes around unit trains.

I'd say the third thing is that, because we have the capacity, unit train loading capacity at our facility, we thought it was a solution that we could get to market quickly to provide our producer customers a reduction, if you will, in the discount that they were seeing in the Basin this past summer and potentially in the coming summer.

Okay, that's great. This last one, just any -- I know you guys have guided that you think you've done dropdown -- you don't need to do any additional dropdowns soon. With the big reduction here in the cost of capital, the rally in MPLX equity, any thought here to doing -- considering an additional dropdown and you may be boosting the distribution growth outlook as a result?

Yes, I think we are always evaluating ways to improve unitholder value. I think the first quarter was a fairly challenging environment around unit pricing and cost of capital; we are very encouraged with the recent performance of the MPLX units.

We think that is due in large part to some of the actions that we've taken, as well as the very positive, in our view, outlook for 2016 and 2017. So as the cost of capital decreases, it certainly increases our optionality around being able to do things that increase unitholder value. I guess, Nancy, any other --?

I would offer, relative to the drops, I think they are just one part of the portfolio. As Don mentioned earlier, we'll be looking at third-party acquisitions; we'll be looking at a lot of opportunities for internal organic growth; and drops are also part of the portfolio.

We've got a whole suite of sponsor tools we can use. So drops are certainly part of the optionality we hope to preserve.

Okay, thank you. That's very helpful.

Mike Blum, Wells Fargo.

Hi, thanks; good morning, everyone. Just a couple of questions for me. One, just curious on the preferred offering, if you could just give us a little insight into the market. Specifically trying to think about is there -- why did you decide to go preferred? I understand the economics of it; but just wondering.

Is there not an appetite in the market generally for common equity -- and your common equity specifically? Or did you choose to do this anyway? Just trying to get a sense of the different options and what that looks like.

Sure, Michael. I think the good news is, as we demonstrated by the bit of common equity we did on the ATM throughout the quarter, there is interest in MPLX equity, and we had no problem raising those dollars. As we continue to think about it, the equity yield has moved around quite a bit in the course of the quarter, and we like the optionality to lock in a rate. Again, that's a known amount and we'll pay that over the period until conversion; so we feel very comfortable about locking that in.

It also gives us the ability to indicate that we've taken our financing needs for the balance of the year off the table. I think with everything we've been faced with in the quarter that's a very important messaging component.

It also demonstrates that, while the transaction was originally contemplated to be done with MPC, we did, as Gary mentioned earlier, have very strong investor support to do this transaction. So we feel like it was just a good set of economics, and we feel like it's nice to take the issue off the table.

Okay, great. Then in terms of distribution growth, and I'm thinking more long-term, so you've got the double-digit out there for 2017; but you've got the dropdown portfolio, you've got a pretty delineated organic growth, you've got the $6 billion to $9 billion of potential projects.

How do we think about out-year growth? Do you think double-digit is sustainable long term? It seems like you've got the tools to do it. Or would that drop to single-digit over time?

Yes, we've not given guidance, as you know, past 2017. I think you did mention we do have a lot of tools that will allow us to support the business and the Partnership over the long term. So I think we are as well positioned or better positioned than many or most of the MLPs to deliver that strong growth.

We're very confident in 2016. We're very confident in the double-digit growth in 2017. And I don't see anything in the underlying business that would cause us to be concerned about that.

Great. Thank you.

Timm Schneider, Evercore.

Yes, hey, guys; I've got more of a technical question. So you have ATEX is running essentially full, and there's really no other ethane solution at the time. It's my understanding you can't move ethane on rail.

So is there a scenario where your NGL production is actually going to be, I guess, capped because you don't have anywhere for the ethane to go?

Yes, this is Frank; is this Timm?

Yes.

Okay, so you really start with the issue around what is the -- what amount of ethane is going to be required to be recovered just because of the downstream quality issues? What we call must-recover ethane.

We've got a lot of headroom right now in terms of the available capacity on ATEX and Mariner West. You probably know that Mariner East is now moving ethane to their Marcus Hook facilities. So that, it's an ethane and propane mix that gets split at Marcus Hook, but it opened up a whole 'nother set of markets for ethane out of the East Coast.

So near term there's really no problem from a must-recover and a gas quality standpoint because of the existing capacity. In fact, there is again a lot of headroom in the basin for the ethane that's going to be produced longer-term. You'll see more and more projects come online that could help provide more market access, to Don's point earlier.

So the short answer is: No problem with ethane.

Got it. Have you guys seen any interest from pet-chem customers along the Gulf Coast in saying: Hey, look, what can we do about maybe securing some longer-term ethane supply?

Absolutely. Yes, there's a lot of interest.

You started your question on the ATEX subject. But clearly our producer customers in the Northeast are doing a great job of optimizing their capital, making decisions around rich versus dry, and including the ethane production that would be provided through our -- de-ethanization facilities.

A lot of that, those netback issues that they're considering, really they're driven by the increasing demand for ethane in the Gulf Coast because of the petrochemical complex down there. So yes, it's becoming a bigger and bigger part of the equation from a netback standpoint, ethane is. And that's all good news.

All right. Last one for me, just how much is it on a per-gallon basis to actually rail liquids on a unit train down to the Gulf Coast from one of your facilities?

We've not provided that information, Timm.

Okay. All right; thank you.

Shneur Gershuni, UBS.

Good morning, guys. A couple of follow-ups. I guess the first one is to Timm's last question there. You had made some very strong ethane remarks in your prepared remarks, so I'm trying to square this away here. Because your response to Timm and I think an earlier answer to Kristina suggested that there were some challenges on the ethane side.

I'm just trying to understand where you expect the rejection to be. Because I would assume that the Marcellus would turn on last in terms of the entire ethane rejection reversal.

Then if -- does this set up the producers to drill differently than they are now? I was just wondering if you can provide a little bit more color on that.

Shneur, this is Frank. Let me just make sure I understand your question. There really -- from an ethane production standpoint in the Marcellus and the Utica, really there is not a concern or a problem.

Ethane has been a critical part of our planning process for five years. It's really the way that we've designed our system and also interfaced with the downstream markets has been a function of, as I said earlier, making sure that we have enough de-ethanization in place with a lot of headroom to be able to meet the downstream specs for the interstate gas pipelines.

And then it becomes much more of a market-driven demand for de-ethanization facilities and pipeline facilities to be able to support the producers' objectives relative to their marketing for ethane. So that's the high-level perspective.

So, ask -- now why don't you ask the question again?

Given those comments and the strong comments that were made in the prepared remarks, is this a set-up for something happening with Centennial or some other outlet that you guys are exploring that you're not ready to discuss yet? Is that how we should think about that?

Well, the earlier comments really were meant to provide you the perspective that ethane is a critical part of the value chain for the producer customers. I really see this as, ethane, as a really good news story. It's becoming much more of a global product that's being provided by the US and our Northeast facilities, and our producer customers are benefiting from that.

There is no hidden message there, other than the fact that we feel really good about the flexibility, our operational flexibility in our complex in the Northeast, to be able to support both the operational issues around ethane as well as the commercial objectives of the producer customers.

Okay. Thank you for that. Just as a couple quick follow-ups here, the reduced growth profile that was guided to: Is this a shifting of CapEx into in 2017 and 2018? Or have some of the projects, I guess, been put on ice for a little bit?

And I was also wondering if you can also comment -- also balance sheet related -- to when we think about drops going forward. I know that you haven't specifically said one. Do we go back to a 50/50 debt/equity split now that the preferred has been placed into the marketplace?

Yes, Shneur, I think the way to think about your first question is, really, everything is tied to the producers' drilling forecasts. From volume forecasting to CapEx, it's all driven by what we anticipate their needs being.

Projects are not being canceled. They're being pushed back to meet the forecasted needs. So nothing is off the table; it's really just a timing issue around when facilities are needed and when we need to spend the dollars.

Then relative to your financing question, yes, it's anticipated. We've said we'll offer no new debt, net-net, in 2016 because we are working on getting our leverage ratio down and doing that predominately through the growth of EBITDA. So the way to think about financing after that is really a return more to a 50/50.

Okay, perfect. Thank you very much, guys.

I'll turn the call back over to Lisa for closing remarks.

Thank you, John. Thank you for joining us today and thank you for your interest in MPLX. If you have additional questions or would like clarification on any of the topics discussed this morning, Kevin Hawkins 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.