MPLX LP (MPLX) 2016 Q2 法說會逐字稿

Welcome to the Second Quarter 2016 earnings call for MPLX. My name is Katie and I'll be your operator for today's call. (Operator Instructions). Please note the conference is being recorded and I will now turn the call to Lisa Wilson, Director of Investor Relations.

Thank you Katie. Good morning and welcome to MPLX second 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 is a reminder that we will be making forward-looking statements during the call and 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.

Thank you Lisa and good morning. Beginning on Slide 3 we continue to execute on our 2016 plans and achieve solid financial results for the second quarter. Adjusted EBITDA was $351 million and distributable cash flow was $285 million. Last week we announced an increase in our quarterly distribution to $0.51 per common unit while maintaining a strong coverage ratio of 1.24 times. We reaffirm our distribution growth guidance of 12% to 15% for full year 2016 without the need for additional drops from MPC to achieve this growth rate. We also reaffirm an expected double-digit distribution growth rate in 2017.

With the completion of $1.3 billion of financing earlier this year, we have provided for our forecasted funding needs through the remainder of 2016 and into 2017. We are confident in the strength of our balance sheet and leverage is now below our long-term target of 4.0 times.

By fulfilling our funding requirements, we're executing an attractive organic growth program to support a diverse set of producer customers into improving commodity prices. There's also growing optimism from producers about the acceleration of drilling activity. With the right assets and the right places and over nine million acres dedicated to what's across our areas of operation; we are well positioned for 2017 and beyond.

With the wave of cracker projects beginning to come online, recovering additional ethane is a focus for producers. We are excited about the opportunity to invest in additional ethane infrastructure as these are part of our synergistic projects that were an important component of the combination with MarkWest.

MPLX is one of the largest processors and fractionators in the United States and has an expansive crude and refined products logistic system. With world-class midstream assets located in some of the best resource plays in the country, we are well positioned to capitalize on an exceptional set of opportunities across the entire hydrocarbon value chain.

Before I turn the call over to Don, I would like to announce Frank Semple, our Vice Chairman of MPLX's General Partner will retire from his executive role at the end of October culminating a 38-year career in the energy and telecommunications industry which follows his distinguished service in the U.S. Navy. Frank will remain on the MPLX board of directors and will also continue to serve on MPC's board of directors. All of us on the MPLX board of directors are grateful to Frank for his service as Vice Chairman and his efforts to facilitate the seamless combination of MarkWest and MPLX.

Frank assembled an outstanding management team at MarkWest and provided a strong leadership that created tremendous unit-holder value. We are fortunate to continue to benefit from his deep knowledge of the midstream business as well as his keen focus on creating value for our unit holders as we position MPLX to continue delivering sustainable returns over the long-term.

Now, let me turn the call over to Don to review our quarterly operational results.

Thanks Gary. Turning to Slide 4 we have provided an update on our logistics and storage segments. Results include a full quarter of income from the Inland marine business acquired from MPC at the end of March. The high quality marine assets further diversify our earnings mix and provide us with another source of stable cash flows through it's long-term fee for capacity contract with MPC.

The second quarter also includes a full quarter of results for the expanded Patoka-to-Robinson pipeline which added 20,000 barrels per day of crude oil supply capacity to MPC's refinery in Robinson, Illinois. Cornerstone Pipeline is also progressing as planned with completion expected in the fourth quarter. In addition, we've accelerated construction of a pipeline that connects our Hopedale fractionator to Cornerstone pipeline and expect to commence operations in the fourth quarter.

With the Hopedale connection, Cornerstone pipeline will provide an industry solution to move condensate and natural gas liquids out of the Marcellus and Utica region into Midwest refining centers and into Canada. Shifting to our gathering and processing segment, Slide 5 provides an overview of our operations in the Southwest where we have infrastructure in areas of the Anadarko, Haynesville, Arkoma-Woodford, Cana-Woodford, Eagle Ford and Permian.

We recently completed the Hidalgo complex, a 200 million cubic feet per day processing plant in the Delaware basin. Producer activity in this area of the Permian is growing and volumes have continued to ramp quickly. A new facility is now 80% utilized only three months into operation. We are very excited to grow our Southwest footprint in this highly economic area of West Texas.

In Western Oklahoma we continue to expand our presence in the exciting stack area of the Cana-Woodford. We are currently processing approximately 100 million cubic feet per day of gas and gathering 7,000 barrels per day of crude oil. For the second quarter we processed over one billion cubic feet per day in the Southwest and processing plant utilization was 79%. For the full-year 2016 our forecast remains unchanged as we expect process volumes to increase approximately 15% and gathered volumes to increase approximately 5%.

Moving to Slide 6, we provide an overview of our gathering and processing operations in the Marcellus and Utica shale. In response to a number of investor requests, we've included the complex level detail for this area. Processed gas volumes were resilient averaging 4.1 billion cubic feet per day and utilization was 79%. We continued to expect process volumes to increase by approximately 15% year-over-year and gathered volumes are now expected to increase by approximately 20% year-over-year.

In addition to our significant gathering and processing position, we are also the leading fractionator in the Marcellus and Utica. On Slide 7 we have provided a summary of our NGL volumes and utilization where we produced over 290,000 barrels per day of ethane and heavier NGL's during the second quarter. Our growth forecast is unchanged from last quarter as we continue to expect fractionated volumes to grow by approximately 25% year-over-year. We continue to progress NGL marketing strategies for the region that improve price realizations for producer customers and have begun to regularly load unit trains from the Hopedale complex to the Midcontinent.

Being able to load unit trains brings efficiency to the marketing of NGL's 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 basins connectivity to both domestic and international markets as well as enhance local demand.

Potential solutions include an NGL rail solution to the East Coast along with an export terminal, reversal and repurposing of the Centennial pipeline to the Gulf Coast in the butane-to-alkylate project.

Each of these would provide producer customers with optionality and flexibility for their future NGL production. Northeast ethane volumes reached a new record of 116,000 barrels per day, an increase of 76% from the second quarter of last year. As shown on Slide 8, we are well positioned to support producer customers as we operate the majority of the deethanization capacity in the region through our distributed and inner connected ethane system.

A recent announcement to construct a world-scale steam cracker near our operations will support new investment opportunities. Based on current utilization of our existing capacity, we can support the production of an additional 70,000 barrels per day of ethane. We are the origination point for all existing ethane takeaway solutions including Mariner West, Mariner East and ATEX. Our facilities will also supply ethane for the coming Mariner East 2 and Utopia Projects. With incremental ethane takeaway projects and the projected completion of a regional cracker facility, we anticipate reaching full utilization of our existing facilities.

In addition, as we outlined in our synergistic capital at the time of the merger, we have the opportunity to invest $500 million to $1 billion over the next five years to facilitate the fractionation, transportation and storage of ethane in the Northeast.

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. We have narrowed our organic growth forecast to a range of $900 million to $1.2 billion and maintenance capital remains unchanged at approximately $60 million. We continue to focus on increasing utilization of existing facilities and are working closely with our producer customers to complete new projects on a just-in-time basis.

Turning to our financial highlights on Slide 10, we reported adjusted EBITDA of $351 million and distributable cash flow of $285 million for the second quarter 2016. Total segment operating income was $394 million with approximately 70% of the segment operating income provided by the gathering and processing segment. The bridge on Slide 11 shows the change in adjusted EBITDA from the second quarter of 2015 compared to the second quarter of this year. Since the prior year quarter, we increased adjusted EBITDA by $281 million. The addition of MarkWest operation accounted for nearly all of this increase while higher tariffs and the addition of the Marine business accounted for the majority of the remaining change.

Slide 12 provides a summary of key financial highlights and select balance sheet information. At the end of the second quarter, we had almost $2 billion available on our bank revolver and the full $500 million available on our inter-company facility with MPC. With the completion of the convertible preferred financing and ATM issuances, we had fulfilled our forecasted funding needs for the remainder of 2016 and into 2017.

We will continue to remain opportunistic with regard to future capital markets activity. We're also committed to maintaining a strong balance sheet and investment grade credit profile by targeting a leverage ratio of around four times. Our leverage ratio decreased this quarter to 3.7 times.

On Slide 13 we have provided our commodity price sensitivity forecast highlighting the annual unhedged impact to DCF by our exposure to NGL's. We forecast fee-based net operating margin to be 92%. For the remaining commodity exposed portion, we continue to employ an active and disciplined hedging strategy and has hedged almost half of our 2016 exposure. In addition, we have started to layer on hedges for 2017.

Including on Slide 14 we have increased the midpoints for our full-year 2016 financial guidance for adjusted EBITDA and distributable cash flow which reflect our expectations for producer volumes, commodity prices and our strategy of deploying capital on a just-in-time basis. We are closely managing our expenses and achieving cost synergies as we integrate MarkWest into MPLX and a larger Marathon petroleum family.

Adjusted EBITDA is now forecast in the range of $1.3 billion to $1.4 billion and DCF is now forecasted in the range of $1 billion to $1.1 billion. We had a consistent record of growing distributions to unit holders. Based on our quarterly financial performance, the board of directors of our general partner declared a distribution of $0.51 per common unit. The second quarter 2016 distribution represents a 16% increase over the same period of last year and marks the 14th 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 expect a double-digit growth rate in 2017. Based on our current plans, no future drops from MPC will be needed to achieve our 2016 distribution forecast. We also target a long-term distribution coverage ratio of 1.1 times and reported a strong coverage ratio of 1.24 times for this quarter.

We remain focused on execution and achievement of our financial and operational targets. With the right assets in the right places, a strong sponsor and long-term producer customer relationships, we are well positioned to deliver on our 2016 plans and to continue providing sustainable returns well into the future.

I'll now turn the call back to Lisa.

Thanks Nancy. As we open your call, excuse me, the call for your 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 Katie, we will now open the call to questions.

Thank you. (Operator instructions.) And our first question comes from Kristina Kazarian from Deutsche Bank, please go ahead.

Good morning or afternoon guys.

Good afternoon Kristina.

So I know you guys reiterated the 15% increase on process volume guidance and now you gave the 20% number on gathers, but can you guys touch a bit more on some of the quarter-over-over regional trends you're seeing in the Marcellus and Utica? Maybe specifically, how I should be thinking about the remainder of the year because it looked like on a quarter-over-quarter basis for this one, Marcellus gathering and frac were both up, does that pace kind of hold? For the Utica we kind of more -- some more decline, so any color here would be great.

Sure Kristina, I would be happy to take it, this is Nancy. In the Marcellus we did see fairly flattish volumes for the quarter and that was really based on a couple of things; we had a little bit of downtime, if you will, relative to some operational, very modest operational issues, and then some other scheduled maintenance so that was what you saw in the Marcellus.

In the Utica what's really going on there is sort of the macro-environment slowing the rate of growth for the producer customers, they're really motivated by the ultimate netbacks up there and we're still seeing very strong upstream economics for them but the pace of drilling is really, for them, focused on the downstream pipeline projects like NEXUS, like Rover and some of those things. So we're hearing good optimism from the producers but some of those downstream projects need to come online to release some of the ducts that are going on in that area and given all of that we are still anticipating better volumes towards the end of the year based on where prices are going, but what -- and we're still committed to that 15% increase in volumes year-over-year.

Okay, and then my follow-up will be, Gary I know you framed this up on the MPC call and Don touched on a little bit as well, but how should I be thinking about the specific opportunities you guys have now that the Shale cracker is moving forward and more specifically, what types of projects come into that $500 million to $1 billion number to support ethane recovery?

Yeah, so I guess you know with respect to the Shale cracker specifically, you know, one of the things that we would observe when a company like that announces a very large project like that, they have done, you know, in our view, an incredible amount of research and evaluation of the availability of ethane to support their project and so from our perspective Kristina, one of the things that is good about that project is it's validating our strategy around building a world-class ethane, an ethane or deethanization facilities in that area because we think there is, there will be, a lot of production of ethane and we will have an opportunity to participate and deploy capital to be able to do that.

You know, we have capacity right now, about 70,000 barrels per day of incremental capacity to support ethane extraction but we think there will be a number of deethanization facility investment opportunities and we've been working very closely with the producer customers to be able to manage that as they pick up their production and we ramp into what is likely to be large ethane production in 2020.

Perfect, thanks guys.

Thank you.

And our next question comes from Jeremy Tonet from JP Morgan, please go ahead.

Good morning.

Good morning Jeremy.

Just wanted to follow-up a bit more as far as back half of the year Appalachian volume trend and just wondering what you guys are seeing as far as producers impacting, pivoting, towards dry gas from wet gas and how that kind of impacts your processing, you know, thought process there and what type of opportunities that could also provide on the dry gas infrastructure side as well?

Well, let me start and then maybe Nancy can add some incremental color. I guess we're not seeing a wholesale shift to dry gas production but rather a balance that depends really on the specific acreage that's held by individual producers. You know, we do have some very good assets in that region right now to -- infrastructure to be able to manage the gathering of that dry gas. You know, you note that we have the Ohio Gathering Gas System so we're gathering gas right now for Gulf port and Belmont and Monroe Counties in Ohio and rise in Belmont County and at the end of 2015 we commenced our operations in Jefferson to support ascent in that. So I think we're really, really well positioned around dry gas but we haven't seen sort of a wholesale move that way, in fact, some of our larger producer customers have been very focused on some of the richer gas areas right now.

Yeah, I would agree with that and I think the other comment I would mention is we have really seen an improvement in NGL prices since the beginning of this year. The price of the NGL barrel has increased almost 30% and so we are starting to see scenarios where producers are going to continue to ramp up their rich gas volumes during the back half of the year.

Okay, great. Thanks for the color and then just want to follow-up with as far as -- you know, thinking about future dropdowns in the multiples, I know you couldn't say exactly where they're going to be but the last dropdown multiple was lower than historically and I'm just wondering if you could just kind of walk us through your thought process there a little bit as far as, you know, for our modeling and how we should think about where those economics or multiples could settle out in future dropdown?

Well, Jeremy, clearly the last big drop we had in the Marine business was at a very supportive multiple. That was really to bridge MPLX shortly after the merger here to bridge the balance sheet through this market cycle. Excuse me, sorry, I thought I was going to sneeze. The -- I wouldn't expect that though we would need to do anything near that type of supportive multiple going forward as -- and Nancy can chime in here, but we have the balance sheet in very good shape now. As we said, we don't need to do any more drops in the remainder of 2016 and into 2017 and I believe the market will certainly strengthen where yields are and where the market is at the time the next drop is needed.

But we expect whatever drop it is to be a win/win for both MPLX and MPC.

I would agree with that Gary and I think I would comment that we're always looking for the best opportunity to provide the sustainable value to our unit holders and that will be through a combination of organic growth at the partnership level, it will be through appropriately priced drops that make sense for both MPC and MPLX and also M&A activity as appropriate for the partnership. So we'll look at all of those suites of options as tools to continue to enhance value.

Gotcha but you wouldn't expect multiples to go back to kind of the nine to ten range that they were when MPLX was first IPO'd?

Well, I think they have to be market multiples, first off, but they also have to generate accretion at the MPLX level. So, you know, I would expect that they will be transactions that will be market-based but will need to be accretive to both MPLX and good for MPC.

Great, thanks for that.

And our next question comes from Justin Jenkins from Raymond James, please go ahead.

Great thanks and good morning everybody. So I guess I'll start maybe with a quick one on the Marine business. It looks like $34 million of EBITDA this quarter tracking maybe a bit ahead of the $120 million, annualize the outline. Is that just some noise in terms of seasonality or is the business actually tracking maybe a bit better than what the initial expectations were?

There wouldn't really be seasonality in the Marine business. I mean, that is a fee for capacity essentially contract. So as the equipment is available, you know, the revenue would accrue to MPLX. You know, there can be from time to time some timing around maintenance and other activities like that but we feel very comfortable about that 120 sort of annual run rate of EBITDA.

Okay, appreciate that color. And then I guess my follow-up may be a more strategic question and I guess thoughts on the GP maybe and then Gary you mentioned on the MPC call about simplification maybe being better in the medium term, and certainly we've seen some well received transactions lately but could you outline maybe how you think about the medium term for the GP and improving the MPL's cost of capital while still ensuring it's there from both MPC and MPLX's perspective, and I'll leave it there, thanks.

Sure, and what I meant by that this morning is that the models that seem to be evolving right now within the midstream space is to keep a simple message and a simple structure. You know, our GP while we'll always have that opportunity, that flexibility to IPO it when we think the market is right. Clearly this is not the correct market timing to consider that.

But, you know, we also have a lot of flexibility on how we look at things down the road. So, I really can't give you a short-term to a medium-term other than we are very aware of all of the structures that are available, very aware of what makes, what can, sense. But, you know, bottom line, I still believe that there's tremendous upside in MPLX as we continue to strengthen, as the commodity price strengthens and we use up -- or we start to fill up more of the capacity that is available within the system that our yield shall improve, as Nancy just stated, as our yield improves it certainly affords more accretive dropdowns that are win/wins for both MPC and MPLX. So we have many knobs to turn as we go forward but the bottom line is that it has to be a win/win for both MPC and MPLX.

Appreciate that answer Gary. Thanks guys.

Yep.

And our next question comes from John Edwards from Credit Suisse, please go ahead.

Yeah, good morning everybody and congrats on a good quarter. Just I wanted to ask about the shale project a little different way. I mean, the announcement of that, I mean, did that change your thinking at all and if so how and any change to strategy after they announced that and if so, in what way? Thanks.

John, I don't think it changed our strategy, I mean, even at the time of the combination, you know, we were talking about ethane and investing to produce ethane as being a very important part of our growth strategy. So I would say what it really did for us and for the market is to validate what an important basin the Utica and Marcellus is and, you know, how important it is going forward and the opportunity set that exists there for us to continue to grow our peer leading infrastructure there.

Okay, thanks for that. And then just one other question, just Gary could you just update us on the synergies with the MarkWest merger, you know, how that's tracking relative to your original expectations?

Yeah, let me -- this is Don. Let me answer that John. I mean I think we've been very focused on synergies so there's a couple of areas where we've been focused; one is on just the relative size of the company and the buying power. So as we think about how we're approaching expenses and costs that we have, we have a larger entity and we're leveraging that between MPLX, Legacy MPLX, MarkWest and MPC. The other area where we spend a lot of time is on, I'll call them commercial synergies, where we're identifying opportunities where having a very, very strong midstream and a very, very strong downstream operation can afford both, be a win for both, MPLX and MPC.

So a good example would be we accelerated some capital around -- we're building the cornerstone pipeline, we accelerated some capital that was probably going to be spent in 2017 or maybe a little bit later to connect Hopedale to Cornerstone and we're doing that because we have an opportunity to move natural gasoline in the short-term and other NGL's longer-term to MPC refineries and other Midwest refineries.

That's good for MPLX because we generate incremental revenue on Cornerstone and it's good for MPC because they have access to natural gasoline and it's good for our producer customers because they find an outlet for their production that is allowing them to get a stronger netback than they would have in an alternative situation.

Okay, thank you for that. That's all I had.

And our next question comes from Barrett Blaschke, MUFG Securities, please go ahead.

Hey guys. Just as you continue to sort of build out in the Marcellus, Utica and the ethane continues to ramp and particularly with Shell now going forward with the cracker there, is this a point where you guys are starting to see a true hub for NGL's developing in the Northeastern market, sort of a Northeastern version of Belvieu?

Yeah, absolutely. I think that's always been our vision and I think that this just validates that that vision or strategy has real momentum and investing our capital there and being the leader in infrastructure development is a very, very good strategy.

Okay, and then just a follow-up, is there a balance to strike in your opinion at this point with bringing on more volume of ethane versus -- given that we're still in rejection today and given where pricing is, obviously I think -- I would assume that you want to have it come on at a more measured pace just to be more supportive of price in that market, can you give us a little color on that?

Sure we have about 70,000 barrels per day of capacity right now that exists and we are very focused on matching up our future capital projects with what our producer customers are saying are likely to be, you know, their needs. So, we will continue to monitor that, we will continue to be in daily/weekly discussion with our producer customers around that and our expectation is that we will be building out deethanization capability and our expectation is that we'll be doing it just in time to meet our producer customer needs.

Okay, thank you.

And our next question comes from TJ Schultz from RBC Capital Markets, please go ahead.

Hey thanks. I missed part of the call so sorry if you touched on this. But the larger projects you're evaluating; butane-to-alkylate, I think you called out the regional exports to the Northeast and the Centennial reversal, just any update on how those are progressing or when you'd expect to provide more definitive scope or scale or timeline around those?

Yeah, the evaluation and consideration of sort of all three of those projects is continuing. You know, we have teams focused on each of them. I would say from a timing perspective getting NGL's to the East Coast, particularly propane to the East Coast is the one that is sort of the nearest term but that's not a change, that has been always our design is to be able to offer an alternative to our producer customers in 2017 to be able to get their NGL's, particularly propane, to the East Coast and then on to the water if they need to export it.

With respect to the butane-to-alkylate project, you know, that's a very large project. We are in engineering right now spending considerable time on that and that was a project that was going to run for several years anyway so I don't think there's been any change in our view around that project, it's continuing to progress in terms of the engineering evaluation and if it was ultimately -- if we ultimately go forward with it, it's likely to be in sort of the 2020 time period or late 2019, that's kind of the time period we're looking at.

Okay and Centennial?

Right, we continue to be in discussions, active discussions with enterprise around maximizing the value of that pipeline and finding, having, NGL's find their way to the Gulf Coast through that pipeline is an active discussion.

Okay, thanks.

And our next question comes from Timm Schneider from Evercore ISI, please go ahead.

Hey good morning and first of all thank you for adding back in the project plant level detail that's extremely helpful for modeling purposes. My question is, I'd like to get your view on longer-term takeaway solutions out of the Northeast whether that be waterborne through [markets] or Centennial or rail, I'm sure you saw one of your peers, they just got five cargos canceled for them in August. The one thing that came up in my mind is, what if this happens at some point at [markets], right? You don't really have the storage or anywhere to divert that product. Does that really increase the need for an export solution to the Gulf Coast or how do you guys think about that longer-term?

Hello?

Are you there?

Yeah, I'm here.

We lost you midway through your question, can you repeat it?

Yeah, sure. So, I was just saying I'm sure you guys saw one of your peers just got five cargos canceled, LPG Export terminals out of the Gulf Coast. Just wondering, what if something like that were to occur at [market], right? You don't really have the storage, and realizing that's not your asset, but you don't really have the storage to divert that propane. So does that really increase the need for an export solution like Centennial to the Gulf Coast or is rail going to be just kind of the placeholder for that? Just interested in your thoughts.

Well, I think that's one of the reasons why we're trying to provide multiple options to our producer customers is so that you can deal with those situations when they occur. You know, the more options we have, the better off our producer customers are and so that's why we're exploring multiple options.

And how are those discussions going? I mean, I realize there's a certain element of circularity here, right, where the E&P doesn't want to sign up for long-term contracts but they're also not getting better netbacks until they do. Has there been more, I guess, more progress on that front or are they still a little bit more reluctant as far as committing to a longer time period?

It may not be a matter of reluctance. I think it's just a matter of economics right now. It is very hard for a producer customer to sign up for a long-term commitment in the situation they currently find themselves. So, we are working hard to kind of progress these types of projects without having to delay and we understand the economic situation our producer customers are in currently and we're trying to continue to progress these projects so that they have viable solutions when the pricing picks up.

Okay, got it. Thanks guys.

And our next question comes from Helen Ryoo from Barclays, please go ahead.

Thank you, good morning and wanted to congratulate Frank for the retirement. The -- so just a couple of questions. So Gary, just going back to your comment on dropdown strategy. Is it fair to understand that you've already guided double-digit growth next year and I think you, and please correct me, I think you said you may not need, or you don't need, dropdown to reach your growth target. If you could clarify that and also as you think about the growth multiple, I guess you'll probably adjust it based on, you know, your ability to sort of hit the double-digit target. Is that the fair understanding that it's going to be priced in a way that you make sure that you reach the growth guidance for next year?

Right, what we had said Helen was that we did not need any additional drops in 2016 to hit the growth range that we had put out and early into 2017, we do not believe so but we will need possibly a drop in 2017. But the market will decide what the valuation is of a drop. Certainly it's going to need to be accretive to MPC and it's going to have to be a fair value back to -- I should say, accretive to MPLX and a fair value back to MPC.

But the market will dictate that but, you know, as I'll ask Nancy to comment on the coverage that we have and what she sees as the outlook for our growth next year.

Yeah, I would agree with what Gary said and certainly we will look at drops at options but we've also got a lot of opportunity for organic growth at the partnership level. So it will all be a combination of how to best generate the EBITDA to deliver those types of double-digit distribution growth and also maintain a very strong coverage ratio. We believe all of those components are important as we move forward.

Got it, thanks for the clarification. And then just on Centennial, and I apologize if I missed this, but I think last time Don mentioned that you'll need to figure out what happens in the in basin and cracker situation to decide on how that -- what kind of type Centennial reversal turns out to be. And maybe if that's still -- now that you have -- I'm sorry, could you hear me well? Hello? Yes, I'm sorry, I've been hearing myself echo.

Yeah, yeah. We just -- there was a technology issue. Sorry about that.

Yeah, sure. So anyway, just a little bit more update on Centennial given that you have the in basin and cracker situation clarified with shale's FID, what's the -- what is -- Is it more looking to be firmed up this year? If so, is it expected to be like a year and a half type of construction period and then I think the current pipeline is a 200,000 barrels per day line and could it be as big as that type of project?

So I think we've not made any sort of public comments nor our partner in Centennial around sort of the size and volumes. I mean, that's part of the evaluation that we are currently undertaking. You know, our view is that just because of the shale announcement of a cracker in basin, doesn't alleviate the need to also move ethane to either the Gulf Coast or the East Coast. I mean, I think there's going to be large volumes of ethane that need to find a home and so the announcement of an ethane cracker I don't think would suggest that these solutions are being put on hold or being deferred.

Got it. And then I guess is it -- given, you know, MarkWest and MPLX now control so much NGL up there, is it fair to assume that you don't really need a third-party underwriting of the capacity to move this forward that you could probably, you know, forward it, sort of firm it up on your own barrel?

Yeah, I guess we're exploring all of the options. I mean, we need to make sure that the economics work for the owners of the transportation but we also need to make sure that whatever gets built and the financial arrangements also work for the producer customer. So I think that is part of what we're evaluating right now but I feel very confident that if we decide to move forward with these projects we would have the volumes available to us through dedicated acreage and other that would allow the projects to be successful.

Do you also have commitment on ME2 and if so, have you said how much?

We have not disclosed that to my knowledge.

All right, thank you very much.

And our next question comes from Jerren Holder from Goldman Sachs, please go ahead.

Hi, good morning. So I appreciate the color about processing volumes in the Marcellus and Utica, still expected to increase about 15% over the prior year. Can you guys comment a bit about the second quarter volumes being sequentially lower than the first quarter and what were some of the drivers of that?

Yeah, we talked about that a little bit earlier on the call and so from the Marcellus perspective we had a few small unplanned outages and we had a little bit of maintenance work that contributed to those volumes for the Marcellus. Over the course of the rest of the year we do anticipate those volumes to firm up a bit and meet our volume projections.

From a Utica perspective, again, it's driven primarily by downstream pipeline constraints on the producer customers and so once some additional volumes come online there we anticipate the Utica will also pick up a bit and that will contribute to, again, meeting our outline goals for process and for gathered volumes for that matter. I think another comment that is just helpful to think about the firming up of the rest of the year is we still have some unused capacity within our system especially in the Northeast and as those volumes fill up the utilization of those plants specifically, that's really going to contribute to additional margin without the need for more capex to bring that margin online. So it's all positive based on the system and the current utilization that we have today.

Okay, and then switching over to the Delaware basin, just given the high utilization, you guys are already seeing on the new processing plant, you know, are there discussions for maybe expansion down in that region whether it's with the existing producer or any other third-parties?

Absolutely. I mean, we've been delighted at the sort of first couple of months of operation of our facility there and we were -- we believe that that's an area where there's considerable upside, there will be considerable drilling and there is a real opportunity. So we are in active discussions with the producer customers for which we're already processing gas and we're also having discussions with others in order to assess when the right time is to make the incremental capital expenditure to make sure that we are capitalizing and providing the appropriate service to our producer customers to allow them to grow.

And as a follow-up to that, you know, to the degree that your producer or producers do come to an agreement that they need incremental capacity, what would sort of be the time period where from go you'd be able to get a plant or additional plant into service?

It's typically about a 12 to 18-month process.

Okay, great that's it for me.

One of the things that we did do at Hidalgo though, I mean at that complex, is we anticipated that there would likely be incremental opportunity so, you know, when you look at the plant right now there is pipe rack and all sorts of other infrastructure that was built to allow for the facilitation of train, incremental trains. So that in our mind is something that allows us to proceed, you know, reasonably quickly or briskly to conclusion.

Okay, thank you.

And once again, if you have a question please press Star then 1 on your touchtone phone. And we're standing by for questions. And we have no further questions at this time. With that I'll turn the call back to Lisa.

Thank you Katie and thank you for joining us today and your interest in MPLX. Should you have additional questions or would like clarification on any of the topics discussed today, Kevin Hawkins, 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 and you may now disconnect.