MPLX LP (MPLX) 2017 Q3 法說會逐字稿

Welcome to the MPLX third quarter earnings call. My name is Elan 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 Lisa Wilson. Lisa, you may begin.

Thank you. Good morning and welcome to the MPLX Third Quarter 2017 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; Mike Hennigan, President; Pam Beall, 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 today 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.

Thank you, Lisa, and good morning to everyone. I'm pleased to report that MPLX delivered another exceptional quarter, continuing its track record of operational excellence and strong financial results. This outstanding performance was driven by record volumes in our gathering and processing operations and solid contributions from our logistics and storage assets.

We're also pleased with the progress we're making related to the strategic actions announced earlier this year. Consistent with our plans, the partnership acquired joint-interest ownership in certain pipeline and storage assets from MPC for total consideration of $1.05 billion in the third quarter. MPC has also offered the remaining identified dropdown to MPLX. That offer is currently under review by the board's independent complex committee.

This last dropdown includes refining logistics assets and fuels distribution services, which together are projected to generate $1 billion in annual EBITDA. We expect this acquisition to close in the first quarter of 2018. Once the terms of the dropdown are finalized, MPC will immediately initiate the offer of a GP economic interest including its IDR rights to the partnership in exchange for newly issued LP common units. Both transactions were then closed in the first quarter. These strategic actions are intended to reduce our cost of capital and support an attractive distribution growth rate over the long term. All of these transactions are subject to requisite approvals, market and other conditions including tax and regulatory clearances.

As you know, we are in an environment, where many of our competitors are having to choose between maintaining their distributions or growing their coverage. MPLX is in a different situation, because we don't have to choose. The dropdowns we have already executed and the one that we will complete shortly position us to not only support an attractive distribution growth profile over the long term, but to also maintain strong distribution coverage. With visibility to strong growth opportunities to a robust portfolio of organic projects, strong distribution coverage and an investment grade credit profile, the partnership is well positioned to be a source of significant long-term value for our investors, which will be further enhanced once the IDR obligation is eliminated.

With that, let me turn the call over to Mike to review our quarterly financial and operational highlights. Mike?

Thanks, Gary. As Gary mentioned, we reported record financial results with adjusted EBITDA of $538 million and distributable cash flow of $442 million. The partnership ended the quarter with a strong distribution coverage of 1.33x. Yesterday, we announced our 19th consecutive increase in our quarterly distribution to $0.5875 per common unit. In line with our previous guidance, we expect to deliver distribution growth of approximately 12% on a calendar year basis for 2017 and we continue to target double-digit distribution growth in 2018.

Turning to Slide 4, we provide an update on our logistics and storage segment. Gary mentioned we completed the acquisition of joint-interest ownership in certain pipeline and storage assets from MPC on September 1. The assets include ownership interest in explore pipeline, Southern Access Extension Pipeline or SAX, the Louisiana Offshore Oil Port or LOOP, and the LOCAP pipeline. These assets are expected to generate approximately $138 million in annual adjusted EBITDA, adding further scale and diversity to the partnership. The third quarter marked the first full quarter of earnings from our indirect interest in the Bakken Pipeline system, which includes the Dakota Access Pipeline. We were also pleased to receive our first cash distribution during the quarter. We continue to make progress on our expansion of the Ozark pipeline system. In connection with this expansion, we announced successful finding open season for the expansion of our Wood River-to-Patoka pipeline, both expansion projects are expected to complete in mid-2018.

Moving to our gathering and processing segment, Slide 5 provides an overview of our operation in the Marcellus and Utica Shales. For the third quarter, gathered volumes averaged over 2.3 billion cubic feet per day, a new record for the partnerships. We experienced significant growth in our gathered volumes, a 25% increase over the third quarter 2016 and a 22% increase over second quarter 2017. Higher Utica gathering activity drove this increase and we expect to sustain these volumes in the fourth quarter.

Moving to process volumes, we averaged approximately 5 billion cubic feet per day in the quarter, also a new record for the partnership. As reported in the second quarter call, we placed a Sherwood VIII plant service in July, raising the size of this complex to approximately 1.6 billion cubic feet per day among the largest gas processing complexes in the United States. We continue to be encouraged with how quickly the volumes have ramped up with the complex, as we operated near full utilization for the quarter within 3 months of start-out. In addition to Sherwood, we continue to see growing volumes that are used in Majorsville complexes. We support the needs of our producer customers on a just-in-time basis. We have plants under construction at Sherwood, Houston, Harmon Creek and Majorsville, all scheduled to be in service in 2018. Overall utilization for the Marcellus and Utica shales was strong at 85% for the quarter. We expect to maintain this high utilization rate through the balance of the year in anticipation of the new plants coming online.

Slide 6 provides a summary of our fractionated volumes in the Marcellus and Utica regions. We again produced a record 365,000 barrels a day of ethane and heavier NGLs in the third quarter, representing a 16% increase over the same quarter last year. The third quarter marked a first full quarter of operations at our new 20,000 barrel per day de-ethanization plant at Bluestone. We are the largest fractionator in the Northeast, and this plant adds further scale to the strong position.

We are also encouraged by the large-scale takeaway projects under development and growing in-basin and global demand for purity ethane. The partnership is well-positioned to capture this opportunity by leveraging our current and expanding de-ethanization system and remain the service provider of choice in the region.

On Slide 7, we provide an overview of our Southwest operations. We continue to make progress on new plant construction in the Southwest. We expect the Argo plant in the Delaware basin to come online in the first quarter of 2018, while the Omega plant in the STACK shale play of Oklahoma is expected to enter service by mid-2018. For the quarter, Southwest volumes were solid at 1.2 billion cubic feet per day with the utilization rate of 78%.

We were fortunate and are pleased to report minimal damage to our system from Hurricane Harvey. While our [Javelina] plant in Corpus Christi did have some limited downtime, it was related to refinery outages in the area. I want to applaud and commend our employees for their teamwork and dedication during the challenging condition caused by the hurricane. The strong testament to the focus and care of our employees exhibit every day.

Before we move to the financials, let me summarize where we are strategically. As I mentioned previously, we plan to deliver on our stated 2017 distribution growth guidance and provide investors with a 12% year-over-year distribution growth. We plan to remain at a high level of coverage following the dropdown and IDR elimination and forecast double-digit calendar year distribution growth in 2018.

As Gary mentioned, the combination of significant transactions with our sponsor provides a unique opportunity for the partnership to target a high level of distribution coverage, while maintaining an attractive and sustainable distribution growth rate for the long term. All done while utilizing appropriate leverage to fund the partnership's growth.

Additionally, we expect to continue growing the partnership through organic capital expenditures. For 2018, we forecast approximately $2 billion of organic growth capital and intend to fund this capital with retained cash and debt and not issue any public equity.

In summary, for 2018, we plan to position the partnership with a strong coverage, double-digit distribution growth, a competitive cost of capital post the IDR elimination and not issue public equity to fund their organic capital. We believe MPLX is one of the most attractive offerings in the MLP space and remain committed to driving value for our investors.

I will now turn the call over to Pam to cover some financial highlights. Pam?

Thanks, Mike. On Slide 8, we provide some financial highlights for the partnership in the third quarter. And as Mike indicated, we reported adjusted EBITDA of $538 million and distributable cash flow of $442 million, both of which our quarterly records for the partnership. Total segment operating income was $562 million with approximately 60% generated by the gathering and processing segment.

The bridge on Slide 9 shows the change in adjusted EBITDA from the third quarter of 2016 to the third quarter of 2017. Adjusted EBITDA increased by $163 million from the third quarter of 2016, driven by several items. First, distributions related to our investment in the Dakota access pipeline as well as earnings from our recently acquired Ozark pipeline accounted for approximately $21 million of the change in the logistics and storage segment EBITDA.

Second, the terminal, pipeline and storage assets acquired from MPC in the first quarter generated an additional $64 million of EBITDA this quarter. Next, the joint-interest pipelines and storage assets dropped on September 1 contributed an additional $13 million of EBITDA. And lastly, higher gathered, processed and fractionated volumes accounted for the majority of the change in the gathering and processing segment, which also experienced the benefit of higher commodity prices versus the third quarter of last year.

Slide 10 provides a summary of key financial highlights and selective balance sheet information. At the end of the third quarter, we had approximately $1.8 billion available on our bank revolver and $298 million available on our intercompany facility with our sponsored MPC. We remain committed to a strong balance sheet and we ended the quarter with a leverage ratio of 3.6x, which is comfortably within levels appropriate for an investment grade credit profile.

On Slide 11, we provide some commentary on our 2017 forecast. With one quarter remaining, we did not update the financial forecast provided during the second quarter earnings call. We delivered strong earnings and cash flow this year and we've demonstrated a disciplined approach to our capital investments. As a result of this performance, we now expect to finish the year above the high end of the previously provided guidance ranges with the exception of capital expenditures. For organic growth capital expenditures, we expect to finish the year below the low end of our previously provided range and we anticipate maintenance capital to come in below the previous guidance as well.

As a result of this performance, we've increased our capacity to fund organic growth with debt and retain cash. Other than the settlement of second quarter commitments, there were no new ATM issuances during the third quarter. And looking into 2018, as Mike mentioned, our current plan is to fund our approximate $2 billion of organic growth capital with retained cash and debt and no public equity, while maintaining a strong balance sheet and an investment grade credit profile. We've a strong record of growing distributions to unitholders. And yesterday, the Board of Directors of our general partner declared a distribution of $0.5875 per common unit. Consistent with our prior guidance, we expect calendar 2017 distribution growth of approximately 12% and we continue to forecast double-digit distribution growth for the calendar year 2018. As we near completion of the strategic initiatives with our strong balance sheet and attractive growth opportunities, we remain confident in the long-term value proposition for our investors.

And now, I'd like to turn the call back to Lisa.

Thanks, Pam. As we open the call for questions, we ask that you limit yourself to 1 question plus a follow-up. You may re-prompt for additional questions as time permits. With that, we will now open the call to questions.

(Operator Instructions) And our first question today is from Shneur Gershuni from UBS.

Just starting off, I obviously appreciate your pivot towards self-funding. But just before ask my questions, I just wanted to confirm some discussion you had on the MPC call earlier today. You sort of talked about the IDRs and the multiple just for illustrative purposes and it's implied. I was just wondering if you can confirm that that's the case and then it's really just a function of a premium on IDR cash flows and whatever the MPLX stock price will imply the value and the multiple. Is that correct?

Yes, Shneur. This is Mike. Yes, what we said on the previous call is very consistent with what we said in the past that the multiple out there is an illustrative example where the market was back when it was first bought out. And I think Tim pointed out very correctly that the goal here for both the partnership and for MPC is to find a place where both parties are happy, and that's what the goal will be for MPC and the goal for the partnership. One of the things that's really important obviously is once this is accomplished -- this transaction is accomplished, MPC will own approximately 65% of the units in the partnership. So, they have the most vested interest in the success of the partnership. So, I think we're really aligned and look forward to getting that transaction completed in the near future.

Right. But just to confirm, you sort of had talked about how the multiple is just an implied number and it's really just what the IDR cash flows are in a premium on that, and so it's more of a function of where MPLX's stock price is trading at the time?

That's correct, Shneur. So at the end of the day, it hit on the head. The sponsor is entitled to a premium to those cash flows and the stock price will be taken into account in the process from both parties side, so that will all come into the process. And I think everybody knows this, the process itself will be in engagement between the independent directors on the MPLX committee as well as with the sponsor. And all those factors come into play and the goal is to find that spot where everybody feels it's a good transaction.

Shneur, this is Gary. And it's not only the unit price of the time. You have to look at the growth profile, the confidence in the growth profile. So, there will be other factors as well. We're not going to get into the multiples or a level that we think it will be, but I think the illustration that we provided earlier gives you a framework.

Perfect. And just a few follow-up questions. Given the Capline discussion, when we sort of look at the flow of hydrocarbons in the United States, it sort of seems to be a trend of refined products moving towards exports. Do you envision that potentially being refined product pipeline instead of crude?

No, we expect this will be crude. If you look at the refined products, there's 3.5 million, 4 million barrels a day of refining capacity in the Gulf Coast, but certainly have a distinct transportation advantage over refineries that will be coming out of PADD II. That pipeline, it's certainly could go in the light product service, mechanically, technically there is nothing, but keep up from that. But it would not make sense to turn that pipeline into refined products at this time because of the tremendous refining capacity in the Gulf Coast. And the Gulf Coast refiners -- refineries that are heavy users of -- just say, users of heavy crude that really are dotted across the entire eastern Gulf need a stable supply of heavy crude that certainly can be supplied from the Canadian oil sands.

And just 1 final question. Has the boards -- both entities discussed what MPC's final expectation is with its holding of MPLX? Do you sort of envision an IPO of a c-corp tracker of MPLX at some point as kind of a next step down the road to sort of [knock] value for MPC and create [enough seat]for MPLX?

You know Shneur, as we look at the business right now, we have tremendous growth opportunities as Mike just outlined. We have very strong coverage. So, we certainly understand how that could be put in place, but it's not necessary at this time to take that any further, but we certainly understand that. But with a growth potential that we have, we think we're in a pretty good shape as we stand today.

Our next question is from Eric Genco from Citi Investment Research.

I just wanted to ask, I think it was touched on a little in the MPC call, but I want to ask a little different way. I mean you've talked in the past about your desire to be a consolidator within the midstream space and one concern has come up amongst the investors is, is the possibility that you might execute on sort of a large third- party transaction at the MPLX level ahead of an IDR exchange? Can I ask what is the probability that you would do a very, very large third-party transaction that will require a lot of issuance before the IDRs are handled?

Eric, I would find that, first of all, difficult to do and we're in the process right now. We've already stated that the next dropdown has been given to the conflicts committee and that simultaneous with closing that transaction, we're going to get on with the IDR exchange. So, that is our goal and our plan right now.

I appreciate that and thank you, because I think that was the case, but I thought it was worth asking as have heard it once or twice before from people, but -- and then I guess in the spirit of continuing to beat the dead horse, I noticed in the release you committed to 12% growth for 2017 as opposed to sort of 12% to 13%. Your coverage is really strong and this decision appears pretty prudent from an MPLX perspective, but once again for the people who kind of think that perhaps MPC is out to sort of maximize its short- term gain from M PLX. Isn't this an illustration like wouldn't MPC have an incentive to push the distribution as high as it could go ahead of the IDR exchange, if you were going to go along those lines? I know it's not where you're looking to do, but I just still like -- am I going too far and saying this is yet more evidence of MPC's sort of long-term perspective on MPLX and sort of making this work for both entities?

Eric, I think you answered the question yourself. We've said many, many times, this transaction has to work for the long- term. MPLX has to trade well. The day after the IDR exchange, there has to be balance in this equation, because if it doesn't trade well the day after with MPC being by far the largest owner of those units, they'll be detrimental to MPC's income stream long-term. So, there has to be a fine balance, some say you kind of thread the needle. And as you do this analysis, but it's going to be balanced for both sides. And as I said, I think you answered your own question, but it's a good dialog to have.

Eric, it's Mike. I just want to also add that right today the market is not really rewarding growth as much as it's rewarding coverage instability. So, part of the reason that we target at the lower end of the previous range was for that very fact. And I think we're showing that we've moved the partnership directionally towards what we believe investors are looking for. We finished the quarter at 1.33x coverage, which we think is a very strong level. And we've also publicly stated that we have no plans to issue any public equity for our organic program for the remainder of this year or into the 2018 program. So, I think we're positioning the partnership in a place that will provide a very attractive place for investors.

It sounds like you're doing all the right things and I apologize for the leading questions, but just something, I think, also the investors hear you say it. So, thanks and keep up the good work.

Our next question is from TJ Schultz from RBC Capital Markets.

So obviously, it sets up well for 2018 for distribution growth and to remain out of the equity markets. But just generally, as you think longer term for your business model, how do you want to manage distribution coverage and distribution growth versus any views that you would want to slow growth to a level that allows you to completely internally fund growth CapEx longer term? Or said really another way, are you really pivoting self-funding long term or is to takeaway here just you don't need to change your view on growth rate now, and you still have the ability to finance from retained cash flow over the next year at least?

Yes, TJ, we are pivoting for a long term. We run the partnership for the long- term, we're not doing anything for just short-term gain. So we believe the sector is looking for that pivot as you called it. So our view is coverage, stability, solid balance sheet, all those things are being rewarded whereas growth isn't being rewarded but we do want to do what we said we would do, so we've previously guided for double-digit growth in 2018. We're going to honor that commitment. But over the long- term as you stated, distribution growth will probably be coming down in this sector, at the same time, we believe we're going to be at a very strong level of growth and I think that's really important for us to differentiate ourselves from everybody else because we do have a very strong level of growth for the future as well.

It's Pam Beall and I just would like to add, we are going to generate a substantial amount of cash flow in the partnership, our size and scale and diversification of earnings and cash flow will be significant. So when we talk about self-funding, we will still have a significant capacity to fund our needs with that as well as retained a cash. So we're really just focused on not being at that cereal issuer of public equity.

Okay, got it, I mean just last one on operations in the Utica gathered volumes, if you could just expand there on the large increase what we may expect in the 4Q and 2018 as it relates to producer activity?

This is Greg Floerke. I would say with regard to the Utica, as I mentioned in prior quarters, a lot of the rig activities moved into the dry Utica, but we are still seeing activity in the rich areas as well. A big driver is Rover coming online, which is connected to our [Cadiz] facility and to other pipelines that gather into that dry area. So, I think there will continue to be variation between Marcellus and Utica drilling. We're seeing activity and growth in both areas though at this time.

Thank you. Our next question is from Tom Abrams from Morgan Stanley.

G&P operating income, Pam, I think you said that the majority of that was volume, does that mean roughly $25 million, say, from commodity margins?

No, what we said on the commodity margins is that the rule of thumb that we've given is every $0.05 move is about $18 million after-tax now that there's a lot of tax in the business. But we did see that strong move in commodity prices year-over-year, so you can kind of do the math on that.

And then the changes, the increase in equity earnings and distributions that was primarily DAPL, the vast majority of that?

I wouldn't say the vast majority, it certainly is a combination. We mentioned both Dakota access pipeline, DAPL and the Ozark pipeline that we acquired earlier this year. And then of course we had the drops that we have made throughout the year as well.

What's driving the lower maintenance CapEx and the growth CapEx for the year?

Tom, this is Mike. Two things, one is, we're trying to employ capital discipline in this environment, and two is timing. Both of those factors together are impacting our maintenance capital as well as our organic. We stated that we had previously guided to [1.8 to 2] on the organic side, same factors, little bit of timing, little bit of discipline on the capital side and we project will come in lower than those numbers for this year.

And lastly, any implications from potential delays at Rover and Mariner, the Mariner systems?

No, we don't believe so. Obviously, we're supportive of both of those projects and would like to see them get up, but in the short-term, we don't see any impact to our system at this point.

Our next question is from Michael Blum from Wells Fargo.

First question is just what is in 2018, and I guess, long-term your target leverage? Do you have any updated thoughts there, obviously I think you've put a range out in the past, but given the pivot that's been talked about in the market, do you have any updated thoughts on where you think that could be either in 2018 or long-term?

Yeah, this is Pam. So, I should have added when I was talking about leverage capacity. Earlier, that -- everything that we do will be in the context of maintaining an investment grade credit profile. So, we do -- I think we do -- we'll have the capacity to borrow a little bit more than we have in the past, but we're probably focused around the low fours 4x debt-to-EBITDA.

And then just one question on the topline that I don't think was asked on the prior call, just why go out an open season for 300,000 barrels a day when the capacity of the line is significantly larger?

I did cover that before, Michael. It really comes out to as I stated earlier. There are 3 owners of this and it takes 3 to tango. We have an agreement that 300,000 barrels a day and the timing is all around the commercial aspects of the partners to agree to put out this opportunity for an open season. So, that's how we derive to that, you're absolutely correct. It will flow much more than that. Now, it won't flow 1.2 million barrels a day of heavy crude just because of the viscosity of that product moving through, but it certainly will flow much more than 300 down the road, but that's a commercial decision on the front- end here that was made, but I will say that we're getting a lot of interest in this opportunity down the road.

Our next question is from Jeremy Tonet from JPMorgan.

Yeah, this is [Troy] in for Jeremy, I think most of the questions have been addressed. I guess just looking at the Permian growth, any commentary or interest maybe on Argo II, I mean just giving consistently high utilization rates there and then more broadly looking at current basis there, any interest in build-out projects, takeaway pipes, anything of that nature?

Yes, obviously, we're excited about getting our next plan up in early 2018. So, that's a primary focus and yes, we continue to put more emphasis on our southwest operations in the Permian in general. And yes, I think you hit on the head, we're going to look for other opportunities that could be downstream of the plants, and we'll continue to look at those, because it's an area that still has quite a bit of growth and we believe we provided an opportunity to participate in that growth.

Thank you. Our next question is from Corey Goldman from Jefferies.

Hey, guys, just one more on [ME II]. I understand it doesn't impact your current system. But does that at least help explain the lower 2017 CapEx spend just given the fact that you guys target at just in-time start-up?

No, Corey, that doesn't have any impact on our spend at this point. Obviously, we support the project and we would like to see it up as soon as possible, but it doesn't have a direct impact on our situation.

Okay, great. And then this last follow-up, I think you've discussed on previous calls, just wanted to confirm on Capline, is your interest in the asset included in the next dropdown, was it ever before the open season?

No, Capline still resides within MPC and it will for some time.

Okay, And just that being said, is there any other assets that could be viewed to be a potential dropdown [candidate] that we don't know about?

Once we complete this big dropdown, we have left $1 billion. I think we have maybe $50 million or so of EBITDA over some time that we could drop in, but that would include some joint venture shipping and some things that they aren't quite ripe yet to be able to be considered to drop down, but the majority of the assets will be done.

Okay and the $50 million I'm assuming that's pre Capline or personal?

That would be correct.

Our next question is from Justin Jenkins from Raymond James.

I guess maybe starting with a follow-up to TJ's question. It seems like maybe some unknowns on the E&P side heading into the next year and maybe that was exacerbated by some commentary from one of your customers in the Northeast yesterday. I guess I'm just curious maybe a little more detail on how things are progressing on your discussions with producers into '18?

It continues to be very constructive. As you know, we believe that the Marcellus Utica area is the best area for development on the natural gas side. And as you're referring to one of our producer customers, a very important customer, we're totally in sync with what their plans are at this point. It should point out and I think you know this that the high majority of the capital will continue to be spent in the Northeast and we remain an integral part of that development. I mean we have 2 major plant activities occurring, our expansion of our Houston complex and also the development of our Harmon Creek complex that will come online. The first to come online in early '18 and the second will come online towards the back end of 2018. So continue to feel really good about the area. Continue to feel really good about the long-term potential in the Marcellus Utica. So, I think we're still in a very good position.

Perfect. Appreciate that color, Mike. And maybe thinking -- taking a stab at the Bakken Pipeline system here, great to see a cash distribution coming in, but can you give us a sense of what level of distribution that might have been in terms of partial versus full?

No, I'll make sure Mike doesn't reveal that information now. As you know, we are a minority indirect owner of the pipe. We don't disclose that separately.

Our next question is from Brian Zarahn from Mizuho.

Just it'd be helpful I have a little more color on the equity self-funding plan for next year. How should we think about the dropdown financing mix of that in equity? You got only more in equity to keep result out of the market next year, and this is meaning that MPC won't take any equity for CapEx. And also how should we think about the unit price assumptions, you've got a significant amount of dropdowns in the buy end which are fairly sensitive to where the unit prices and how that impacts your excess coverage?

A couple of things there, Brian. First of all, our positioning is predicated on the fact that we believe investors are looking for us to be in a self-funding model and that's exactly where we are. Gary mentioned it, we're in a unique position, because of the strategic actions with the sponsor, we're in a very unique position. We're able to have high coverage, solid distribution growth compared to the peers and put ourselves in a position where we're not going to issue public equity, and we're going to plan the spend about $2 billion in organic growth capital. And just a quick summary of that, we're going to put on about 1.5 Bcf of processing next year, 40,000 of de-eth capacity and 60,000 of C3+ frac capacity. So to be able to do that, we believe we're in a very unique position. So, feeling very good about that and think that offering to the MLP space is very strong. And your second question was?

The mix of funding. So Brian on the drops, from the beginning of the discussion about the strategic actions, MPC and MPLX have been aligned that we would strike a balance of roughly 50-50 when you look at all the drops in composites and it's moved around on either side of that 50-50. But when we get on the other side of these transactions, you'll see that there still will be roughly 50-50.

And then just to confirm on the self-funding for equity, MPC is not expected to -- no units are expected to be issued at MPC next year for...?

No, not for our growth capital spending, no. That's -- we're not trying to be cute saying we're going to issue equity to MPC and then they fund our capital spending program. No, we think that as has already been said, just the unique opportunity with the drop of this $1 billion into the partnership and the field distribution has no maintenance capital, so it's all free cash flow for the partnership. It's a significant slug of capital that we can use to fund the business and maintain a high coverage and still have an attractive distribution growth rate.

That's a good segue to my next question on maintenance CapEx and appreciate the preliminary outlook for '18 on the expansion CapEx. But can you refine your 2017 maintenance CapEx expectations and what's a reasonable range for 2018 for maintenance CapEx?

Brian, on 2017, we haven't given an absolute number. Just we're telling the market that we're going to come in below that $150 million due to 2 things, capital discipline and timing. The team has done a very nice job. John Swearingen's team amd Greg Floerke's team done a nice job. Look at our capital program and we're going to come in reasonably well below that, but we haven't guided to a number. And as far as 2018, we haven't gotten through our full process there yet either, so we don't have a number to disclose at this point.

Our next question is from Jerren Holder from Goldman Sachs.

Just wanted to start maybe on third-party M&A, obviously, you guys have commented that you believe that midstream needs to be consolidated at some point. Can you just remind us in terms of how active you guys would like to be. And is this more of a post IDR restructuring event that you would be more aggressive in exploring opportunities?

It's not, Jerren, that I think it will, the Midstream is consolidating. We have been active and looking at some opportunities, but nothing has come up of any size yet that has really set us well. But as I stated earlier, we've already turned over our dropdown to the conflicts committee and they're assessing that. And that simultaneous with that close, we would expect to get the IDR exchange done. So, that is first and foremost in our mind right now. So, you're going to see us get that done straightaway, then we will see what opportunities there might be.

As a follow-up, obviously we've been seeing higher NGL prices, propane particular. Any update in terms of how you guys are thinking about hedging, have you been doing more as far as 2018 is concerned given where prices are? And then also in terms of your customers -- producer customers, have you seen a bit of a shift from their dry acreage to wet acreage a s a result from this higher NGL prices?

This is Greg Floerke again. We are seeing -- as you can see by our growth, rich drilling in the Marcellus is robust. We are happy to see propane prices above $0.90. We see propane as a percent of crude oil disconnect for the first time since the shale revolution started in the Marcellus. So all good signs and really driven by exports and storage. So, I think as we look at the forward curve, it's not necessarily reflected in the forward curve yet. In terms of pricing, we're not seeing $0.80 or $0.90 pricing there yet, so that will have obviously an impact on our strategy towards hedging, but it's really being primarily fee-based. It's really good sign for our customers who get the most benefit out of the pricing moves and does provide positive economic to move to the rich gas side, we believe, in the near future.

Jerren, its' Mike. The only thing I would add is, we're seeing a lot of constructive signs. As Greg mentioned, robust activity on the wet side. We also mentioned in our prepared remarks that the dry activity in Utica has picked up, which is encouraging to us. And to your last point, we're getting support from the commodity price, which is strong for the producers as well. So all the factors are looking positive and constructive for the activity that we're seeing.

And our final question today is from Barrett Blaschke from MUFG.

Just a lot of mine have been answered, but just looking out for growth sort of beyond what's already on the list. Do you guys see any desire to move more, I guess, vertically through the supply chain for NGLs in particular?

Yes, I think one of the things that we're going to look to do is diversify our portfolio. We have a terrific G&P business that goes well ahead to the plant. And we're going to look investigate our opportunities to be downstream of that. We're open to a lot of different things, in general, I would say. The way I think about it is we have a great foundation on both the G&P side and the L&S side. So, we're in a unique position with a terrific foundation. And now our opportunity is to take advantage of the assets we have and try and diversify from there.

Is there a preference for kind of what type of product you'd be looking for maybe like a long-haul system on, would it be more for the NGLs or would it be more for liquid side?

We're closer to the NGL systems at this point from where we are, but we're open to anything really, to be honest with you, one of the things that we want to do is, expand our thought process and be able to be a service provider in some of the other services that are out there that we haven't participated in at this point.

Thank you for joining us today and for your interest in MPLX. Should you have additional questions or would like clarification on any of the topics discussed this morning, Doug Wendt, Denice Myers and I will be available to take your calls.

Thank you. And this does conclude today's conference. You may disconnect at this time.