MPLX LP (MPLX) 2020 Q2 法說會逐字稿

Welcome to the MPLX Second Quarter 2020 Earnings Call. My name is Missy, 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 Kristina Kazarian. Kristina, you may begin.

Good morning, and welcome to the MPLX Second Quarter 2020 Earnings Webcast and Conference Call. The synchronized slides that accompany this call can be found on mplx.com under the Investor tab. On the call today are Mike Hennigan, President and CEO; Pam Beall, CFO; 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 Mike Hennigan for opening remarks.

Thanks, Kristina. Good morning, and thank you for joining our call. As we expected, impacts from the COVID-19 pandemic continued to create challenges across our business during the second quarter, specifically, significantly lower levels of demand for crude and refined products decreased the need for our Logistics and Storage's services, while production curtailments in response to lower prices pressured the gathering and processing systems we operate.

In response to this challenging business environment, on our last quarter call, we announced proactive steps to reduce our forecasted 2020 capital spending target by over $700 million and operating expenses by approximately $200 million. The progress we made on the proactive steps we announced in May helped offset some of the challenges we faced during the quarter.

We believe that the underlying business, coupled with the steps we have taken have positioned us to continue to generate stable level of EBITDA to support our goal of achieving positive free cash flow after capital investments and distributions for 2021.

Turning to Slide 4. Our performance during the second quarter highlights the stability of our underlying businesses, the quality of our contracts and the execution on our identified steps to help offset what we knew would be a challenging environment. Earlier today, we reported adjusted EBITDA for the second quarter of 2020 of $1.2 billion, relatively flat versus our first quarter 2020 EBITDA. Our second quarter EBITDA exhibited less volatility than we estimated, primarily due to operating expense reductions that we realized earlier than anticipated in the L&S business, whereas our G&P segment performed roughly as expected.

Turning to Slide 5. The other key element of our path to positive free cash flow is continued capital spending discipline. The process of high grading our capital portfolio has been underway since the combination with ANDX last year, with the growth capital target progressively reduced from about $2.6 billion when the combination closed to our latest 2020 target of about $900 million announced last quarter. We are on track to achieve our 2020 reduction of over $700 million as we continue to focus on opportunities with the most attractive returns.

Overall, we continue to target about 75% of our growth capital target towards the L&S side of the business. And this growth capital spend target remains primarily related to L&S projects that were already underway, including the Wink-to-Webster crude oil pipeline and the Whistler natural gas pipeline.

Capital spend on the G&P side continues to be adjusted dynamically to ensure we are bringing infrastructure online just in time to meet our producer customer needs, especially in the current environment.

Turning to Slide 6. I want to take a moment to comment on sustainability and our role as an industry leader. We recently published our 2019 sustainability report, highlights of which can be found on Slide 20 in the appendix. The report is greatly expanded this year in terms of content and disclosure and outlines our commitment to provide information consistent with the many reporting frameworks that are influential in the investment community. As such, the report expands upon our recent efforts in environmental, social and governance aspects of our business.

I wanted to take a moment to touch on recent events that have impacted many places where we live and work. We are committed to promoting diversity and inclusion in our workplace and in the communities in which we operate. I firmly believe that we all have a role and a responsibility in creating shared value in our communities. Understanding each other starts with meaningful dialogue, and ultimately, that's how we'll make progress together.

Now let me turn the call over to Pam to discuss our quarterly results.

Thanks, Mike. Turning to Slide 7. I'm pleased to report that MPLX delivered second quarter adjusted EBITDA of $1.2 billion and distributable cash flow of $1 billion which provided continued strong distribution coverage of 1.39x and leverage of 4.1x. As Mike previously mentioned, the progress we made on the proactive steps we announced in May helped offset some of the headwinds we faced during the quarter, allowing us to continue to generate strong cash flow and adjusted EBITDA.

Slide 8 shows the second quarter Logistics and Storage business segment highlights. A decrease in both pipeline and terminal throughput for the quarter versus the second quarter of 2019 was primarily by lower refinery utilization at MPC's refineries. During the second quarter, progress continued on the Permian long-haul pipeline projects in which we have equity interest. The Wink-to-Webster crude oil pipeline and the Whistler natural gas pipeline are expected to be placed in service in the first half and the second half of 2021, respectively.

During the quarter, MPLX, along with its partners, secured project financing for the Whistler pipeline, which was already factored into our reduced 2020 growth capital target. And while we noted last quarter, we were no longer pursuing the construction of the BANGL pipeline, we did indicate that we continued to look for ways to support our producer customers. To that end, we formed a joint venture with WhiteWater Midstream and West Texas Gas to provide NGL takeaway capacity from MPLX and West Texas Gas processing plants in the Permian to Sweeny, Texas. This optimized approach largely utilizes existing infrastructure with limited initial construction. MPLX is contributing existing pipeline laterals and equipment to the joint venture, which defers new capital to the out years.

As part of this solution, the joint venture has entered into capacity arrangements from Orla to Sweeny, including an agreement with EPIC Y-Grade Pipeline, LP to own an undivided joint interest in Epic's existing 24-inch NGL pipeline from West Texas to the Eagle Ford basin.

Additionally, on July 31, we entered into a redemption agreement with MPC in which we agreed to transfer our Western wholesale distribution business that we acquired as a result of the ANDX acquisition to MPC in exchange for the redemption of $340 million MPLX common units held by MPC. The Western wholesale distribution business was quite different from the fuels distribution business dropped down to MPLX from MPC in 2018.

And this transaction allows us to simplify MPLX to only one fuels distribution model. Finally, I wanted to share some comments around some of our Bakken assets, including our roughly 9% indirect interest in the DAPL pipeline and our full ownership interest of Tesoro High Plains Pipeline system. Both of these systems are currently facing regulatory and legal challenges.

As a small indirect owner of the DAPL pipeline, Energy Transfer, not MPLX, is representing the combined interest of the owners in this situation. With regards to the High Plains Pipeline system, we have appealed the Bureau of Indian Affairs trespass determination, which triggers an automatic stay. During this day, the pipeline would remain operational. In the event of both of these pipelines were to be impacted for any period of time, we estimate a maximum annual EBITDA impact to MPLX of less than $100 million. As we work through these processes, we are committed to respecting the rights of the indigenous groups.

Now turning to Slide 9. We provide second quarter gathering and processing business segment highlights. Overall, gathered and processed volumes decreased versus the second quarter of 2019, primarily due to producer customer production curtailments and shut-ins, driven by low commodity prices. In the Marcellus and Utica, gathered volumes decreased 1% versus the same period last year, primarily due to weakness in wet gas gathering in the Utica as some producers shifted production to dry gas.

In the Marcellus, gathered volumes increased 9%. Process volumes increased 1% versus the same quarter last year primarily due to the Marcellus, which remained relatively strong, where processed volumes increased 6% higher than the second quarter last year.

Fractionated volumes increased over the second quarter of 2019, primarily driven by the Sherwood fractionator that came online in the fourth quarter last year. Throughout the year, we have discussions with our producer customers about their processing needs as well as their production expectations with a goal of bringing on new assets just in time to meet their needs. As a result, during the quarter, we shifted the completion of both Smithburg 1 and Preakness processing plants in the Marcellus and Delaware Basins, respectively, from the second quarter of 2020 to 2021. The Hopedale 5 fractionator is still expected to be placed in service in the third quarter this year.

Slide 10. Moving to our financial highlights slide. Adjusted EBITDA was $1.2 billion for the second quarter of 2020. Total L&S segment adjusted EBITDA was $839 million, while the G&P segment contributed $388 million in adjusted EBITDA. For the quarter, we generated approximately $1 billion of distributable cash flow and will return for the quarter $746 million to our MPLX unitholders. This provides distribution coverage of 1.39x and resulted in $280 million of retained distributable cash flow.

The bridge on Slide 11 shows the change in adjusted EBITDA from the second quarter of 2019 to the second quarter of 2020. The Logistics and Storage segment increased $18 million year-over-year. While we experienced lower pipeline and terminal volumes resulting from lower utilization at MPC refineries, this impact was more than offset by lower operating and project expenses as well as an increase in earnings from additional marine equipment placed in service. The Gathering and Processing segment decreased $40 million, primarily driven by lower weighted-average NGL prices and lower gathered and processed volumes due to production curtailments and shut-ins.

On a sequential basis, second quarter EBITDA for both Logistics and Storage and Gathering and Processing segments was down due to lower demand caused by COVID pandemic and lower commodity prices, resulting in producer curtailments, respectively.

Slide 12 provides a summary of key financial highlights, and select balance sheet information. We ended the quarter with leverage of 4.1x and ample liquidity with approximately $2.7 billion available on our bank revolver and $1.5 billion available on our intercompany facility with MPC.

As we look forward, we expect to continue to grow free cash flow by allocating capital investments to the highest-return projects with a long-term strategic focus. This disciplined capital investment approach should allow us to increase our financial flexibility and distribution coverage while maintaining an investment-grade credit profile. Now let me turn the call back over to Kristina.

Thanks, Pam. As we open the call for questions, we ask that you limit yourself to one question plus a follow-up. We may reprompt for additional questions as time permits. With that, we will now open the call to questions. Operator?

(Operator Instructions)

Operator, we're ready for our first question.

First question comes from Shneur Gershuni from UBS.

I was maybe wondering if we can start off with the distribution a little bit. Second quarter was supposed to be a difficult quarter due to COVID. The results were clearly stronger than expected. At the MPC level, you've sold Speedway, which improves the credit profile of MPC as a counterparty. I was wondering if you can talk about how this all impacts your thoughts around the distribution on a go-forward basis. There has been some questions with investors recently. So I was just wondering if you can sort of give us your views, how you're thinking about it and so forth.

Thanks, Shneur. This is Mike. And thanks for asking that question because one of the things I wanted to try and clear up a little bit, there was a little bit of confusion after the last quarter on some of my comments. So I appreciate you asking that. So first of all, let me state, obviously, we've reaffirmed the distribution at the current level. And then just to remind people, part of my own style, for those who've worked with me in the past is I'd like to ask and get a lot of feedback and perspectives from people when we have our individual meetings or one on ones, and then I try and feed that back to the market. So everybody gets to see the lens in which we're viewing things. So I want to be more clear today that the distribution is an important part of MPLX's value proposition. So in a period when the refining business is facing significant demand challenges, it's also a very important source of capital that MPC relies on as well. So we have not had the external pressures that some of our peers have had, who have made changes to their distribution. So I think this quarter especially shows how MPLX has stability in its EBITDA profile. And so in that regard, we announced, again, our decision to support the return of capital to unitholders through the distribution.

So we feel very strongly that a return of capital is a high priority for us, and that distribution staying the same despite some of the challenges that others have had, I think, is hopefully showing you some of the stability that we think is in our business. So with that said, sorry, it was confusing to people last time, but we obviously feel strongly about it and have reaffirmed our distribution at the current level.

Mike, really appreciate that confirmation there. Maybe as a few quick follow-ups here. The environment is obviously uncertain, but I think things have definitely changed since where they were back in April and early May. I was wondering like given where current refinery utilizations are today and where congestion is today, how close is MPLX to -- from a pipeline perspective, to be at or running above the minimum volume commitment levels.

Yes, Shneur, it's Pam, and I'll take that question. So obviously, there were some systems during the second quarter that we were running below minimums. And candidly, since we formed MPLX, we have had a few pipeline systems where we have had deficiency payments, and you can see that reflected in the deferred revenue that we report in our earnings and in our Qs and Ks. So we've always had a little bit of -- some systems haven't run as we originally expected they would. But overall, I would say that we would expect that the volumes would be picking back up here in the third quarter, reflecting a rebound in demand from the trough that we all experienced probably around April. So would expect there to be fewer volumes running at the minimum volume commitments. I will say that on the legacy terminal side of the MPLX business, we have protection at pretty high levels. So if we did run -- continue to run below MVCs, we have good protection there. But the majority of the pipelines, even in the second quarter did not hit the MVCs.

Appreciate that. If I can just slide in one little clarification. With the asset level or asset swapped to MPC that you announced today, do you have the trailing 12-month EBITDA or a multiple? And is that kind of a strategy that you see kind of going forward where you may see some asset swaps between the 2 entities?

Yes, Shneur, this is something that we had -- really had contemplated as a kind of a cleanup matter once we close that combination with ANDX. And we didn't pursue it because of the pending midstream committee review. So just to refresh for those who may not be as familiar with this business, it was a business that was dropped down from Western Refining into western logistics. In 2014, it was about $40 million of annual EBITDA run rate. And so that there wasn't much growth, if any, in that business. That was the run rate. So that's what you should use for your estimates about how that would impact MPLX.

Next question comes from Jeremy Tonet from JPMorgan.

Just wanted to start off with the Martinez and Gallup refinery closures here, and should we think about any impacts to MPLX? Is there a certain level of kind of MVCs here? Or are there opportunities to kind of to modernize the assets to handle future needs? Or any thoughts you could provide here would be helpful.

Yes, Jeremy, this is Pam. So with respect to the Gallup refinery, we expect no impact to MPLX in terms of the EBITDA as we'll continue to operate the assets in and around the refinery. So a significant portion of the earnings related to Gallup for MPLX come from crude gathering and pipeline system that fed the refinery. But to the extent that fruit is not going to Gallup refinery, it will go on the TexNew Mex -- logistics system down to Midland. So we really expect to see no impact to EBITDA as MPC could continue to supply that market with refined products with other means than running the refinery. And then as it relates to the Martinez refinery, MPC will obviously be evaluating the assets that could continue to be used there in support of the renewable diesel conversion that it's evaluating. And we'll have a much better idea over the long term, how those logistics assets around that asset might be utilized.

But in the meantime, there are agreements in place that do call for continuation of minimum volume commitments that continue over an extended period of time. So assets were dropped in at different times. There are different length of times for these minimum volume commitment contracts, but some of them extend out to 2026. So would expect, in the near term, no impact, again, on the cash flows and earnings for MPLX.

Got it. And then pivoting over to Gathering and Processing. I was wondering if you could provide a bit of color as far as what you guys are seeing in July. Just trying to get a feeling for what type of recovery you might be seeing? Curtailments coming back online or any sense of trends heading into the third quarter here?

Greg, do you want to handle that one?

Yes. Thanks, Mike. Can you hear me?

Yes.

Okay. Yes, we are -- we have seen some of the curtailed shut-in wells come back online as we moved out of second quarter or actually through second quarter and into July. Yes, we were still close to 90% utilization in the Marcellus. And not as much curtailment there, probably more in the west in the crude producing areas and associated gas. But as crude prices improved, we did -- we have seen some of those wells come back online and the gas along with it. So yes, generally, the dip was in April on into May, and it's gradually improved since then.

Got it. Maybe just clarification. July trends, how does that compare to first quarter? Is it possible to kind of frame it that way?

Well first quarter, I think it's generally getting back to levels that were there and probably not completely in all areas yet, but on a positive direction.

Next question comes from Christine Cho from Barclays.

As the parent thinks about how it wants to use the proceeds from the Speedway sale, how do you guys view a potential roll in of MPLX, which would enable you guys to -- which would enable MPC to retain the cash that's being paid out to the public unit holders? Then what other factors could play into the decision? Whether it's corporate tax rates potentially going up, tax position as parent, a preference not to have G&P assets of the parent, et cetera, just how you guys are thinking about all that?

Christine, this is Mike. So on the previous MPC call, we told investors that we have 2 priorities for use of proceeds with the Speedway sale. One is balance sheet and our leverage metrics, and the second is return of capital back to shareholders. So I got asked the same question there. And I'll just remind you and others that we did a pretty exhaustive study on the midstream space with questions similar to what you're asking as far as roll up or bring in RLFD back or anything along those lines. And we really came to the conclusion that because MPC receives a very robust distribution with its ownership percentage in MPLX at $1.8 billion, it didn't make a lot of sense to buy in a cash flow stream that we were already getting via the distribution. So our conclusion at the midstream study, knowing that it would be north of $10 billion transaction was such that we didn't think that, that was a value creator for either entity and that Marathon at the parent level would be much better served by returning that capital to MPC shareholders. So that's our priority right now.

And we also disclosed that over the next 5, 6 months, whatever it takes to get to close once we get through it, yes, we're going to be doing a pretty exhaustive study of -- as to what's the best efficient and effective means to deal with that use of proceeds. Hopefully, that helps.

Yes. Fair enough. And then how does the 7.7 billion gallons of fuel per year supply agreement compare to what Speedway has done in past years? And if you can just add some more color on how this contract works, meaning what happens if they don't take the 7.7 billion gallons, and what sort of upside opportunities do you contemplate?

Yes, it's a good question, Christine. So the 7.7 billion is based on 95% of traditional speedway volumes. And that's for the entire 15 years. So we got a lot of security for MPLX on the volume commitment there, slight flexibility, but 95% for sure. And then we also have a separate agreement, a separate supply agreement to provide 7-Eleven with their growth profile. So they have a stated position of 20,000 stores that they want to own. So we know there's a lot of growth potential with 7-Eleven. So we actually have 2 separate agreements. One is to maintain that base speedway supply and two is to open up the potential for increased value for MPLX going forward.

I also want to comment that the integration value that MPC sees translates directly to MPLX as we'll be using MPLX assets, terminals, pipes, et cetera, et cetera. We're going to continue to be the supplier of transportation logistics. So trucking, all of that comes together. So that was an important parameter in our commercial discussions that we wanted to maintain that relationship going forward. And then hopefully, there is upside to it as 7-Eleven grows.

Great. And if I could just have one more clarification question. On the redemption, how many units were canceled tied to selling that asset back to MPC?

Yes. Christine, this is Pam. So the number of units redeemed was 18,582,088.

How is that for an estimate, Christine?

And just so you know how we arrived at that, it was based on the 10 trading days ending at market close on July 27.

Next question comes from Spiro Dounis from Crédit Suisse.

I'd like to follow-up with Jeremy's question, but also just revisit some of the topics that came up on the MPC call. There was a lot of focus around cost reduction and further optimizing the refining portfolio beyond Martinez and Gallup. And so just wondering, to what degree does MPLX contribute to that initiative going forward by a way of its own asset closures, cost cuts or even tariff cuts, just given that it's one of the main service providers for MPC. So just seems like there's a potential there for future actions at MPC to be disrupted for MPLX. So any color on how you're weighing the various stakeholder interest there would be helpful.

Yes, sure, Spiro. So first off, the initiatives at MPC, some of them directly apply at MPLX. We are trying to lower our cost structure in both entities as a way to be more competitive going forward. And last quarter, we had said about $200 million of expense reduction planned for MPLX in 2020. And at the time, I said some of that is things that we know we can count on and some of it may be a deferral. But since our last talk last quarter, we feel very confident now that, that is more of a structural change. So we are committing that for 2020, we believe that, that is going to be a long-term impact. So in those areas, I think you're going to see us heavily concentrate similarly on trying to lower cost structure.

As far as the discussion between the entities, I'm a big believer in win-wins for both MPLX and MPC. And we try and achieve both entities coming out in a better position than going into it. So there is a strong integration value set that provides opportunities for both entities. And not only do we want to continue to capture on that, we want to take that to another level. So if anything, one of my takeaways from the last couple of months is, we have an ability to do a better job of integrating the relationship between the 2 such that it's a win-win for both. In areas where there is counterviews. I mean obviously, we're going to try and do what's best for each entity stand-alone. We're very respectful of the 2 separate entities. So as Pam said, MPC is making a decision on Martinez that could have an impact on MPLX, but we'll have to see how that plays out. We're still pretty confident that the terminaling and logistics assets is an asset for Martinez. So we know that, that is an important part of the go-forward valuation for Martinez. But we constantly try and evaluate both separately and together and try and come out with the win that achieves a good outcome for both.

Understood. That's helpful. And then with respect to the new NGL pipeline announcement, can you give us a sense of, I guess, what the returns are expected there to look like compared to your historical returns target? And sorry if I missed it but just in terms of CapEx required to fund the UJI, is that already considered in your current guidance? And I guess, what's the timing for in service here?

Yes. So I'll give a few comments, and then I'll let Tim go into a little more detail. But the first couple of comments is, obviously, we don't give individual capital or returns. So it is in our data that we've given to date, and it has been. So throughout all of this, we always are trying our best to disclose where we think our total capital is. And as I said last quarter, and we had known for some time, but we finally got to the point last quarter where the market was kind of ahead of us that we weren't going to do the big capital outlay that was originally contemplated for BANGL.

So Tim and his team have worked diligently to get us to a really good win-win solution for producers to have takeaway solution for us that we can do that in a very capital efficient way. And ultimately, I hope you're going to continue to see this, our return metrics, we're going to be very strict on making sure that we get good returns on our projects. So Tim, why don't you give us a little bit more detail so they can understand what's happened there?

Okay. Thanks, Mike. As was stated, the -- it's very capital efficient program that we're putting together here. I think your question, first off, was about the timing. The construction of the pipeline laterals from the MPLX and WTG processing plants and other initial construction are expected to be complete by the fourth quarter of 2021. Now a little bit about the joint venture itself. The JV will initially own a 30% undivided joint interest in the portion of the Epic NGL pipeline. We do have the ability to grow that ownership over time as the basin recovers. So specifically, the JV will own a share of the Epic 24-inch from Benedum to Gardendale, Texas. Beyond that, we have the construction of the laterals that connect up to the various points on the Epic pipeline. And then we follow that up with some other various capacity arrangements that get us to the Sweeny fractionation complex. So all in all, a win-win for the JV and our -- and the other partners in the deal.

I just want to add, Tim and the rest of the partners did a really good job of staying focused on providing the customer service that was needed for the producers and being very innovative and creative in the way that the project has evolved. So pretty proud of the outcome here, pretty capital efficient. At the same time, providing pretty good service for growth in the Permian.

Next question comes from Ujjwal Pradhan from Bank of America.

First one on the Tesoro High Plains situation. Pam, thanks for the color earlier on the potential impact that you mentioned around $100 million for both DAPL and Tesoro, I believe. Wanted to clarify that number. And also to get to what the impact would be with respect to High Plains alone. Really in an adverse scenario that the decision is upheld, do you expect the system can run in some fashion with just the pipeline being shut? And really what the impact would be overall?

Yes. Ujjwal, the system itself, aside from the area in dispute, could continue to run and we could continue to maintain a very large share of the EBITDA that we enjoy from that system today. So we think it is potentially -- there is a potential that we would have very minimal impact just from that particular situation itself.

Got it. So to clarify the -- sorry, go ahead.

I just wanted to add to Pam's remarks, just so you're clear. So we did file an appeal, so -- which triggers an automatic stay. So the current situation stays exactly the way it is. What Pam was trying to state is, if for whatever reason, and we think the likelihood is low, but if for whatever reason, it were to shut down, we're still going to maintain about 75% of the EBITDA on that system. So -- but the downside to it is pretty low. And at the same time, we're confident that we can get a resolution that works for ourselves as well as the counterparties.

Got it. That helps. And a follow-up on the NGL takeaway project here. Thanks for the details on what you already provided. But can you also talk about your -- the terms of your agreement with Epic? And there are a couple of loans at that entity, would that be recourse to you under this agreement?

So Ujjwal, that type of detail, we typically wouldn't go into. What I would say to you, though, is I think we've ended up in a spot where Epic is a partner, WhiteWater is a partner. We all think we've ended up in a pretty good spot, but that level of detail is something that we're not going to disclose.

Understood. Fair enough. And last one, if I may. You have 2 short-term floating rate notes issued last year, totaling $2 billion that are callable beginning in September this year. Would you consider rolling them over to a longer maturity? And given where the market is today, if that would make sense?

Yes. Ujjwal, it's Pam. So we continuously evaluate opportunities in the market to refinance near-term maturities and then -- and reloading our revolving credit facility. So we look closely at that all the time and look to take advantage of opportunities when they present themselves.

Next question comes from Tristan Richardson from Truist Securities.

Really appreciate all the commentary on RLFD with all the moving parts. I guess, just a quick clarification question on -- maybe on a follow-up to a previous question on the 7-Eleven fuel supply agreement. Does that fuel supply agreements sit at MPLX? And should we think the roughly 1.4 billion is not necessarily changed by the terms of that new supply agreement? Or just any thoughts there?

Yes. Tristan, this is Pam. So all of the agreements for fuels distribution exists between MPC and MPLX. MPLX has no agreements directly with Speedway. So all of the agreements that are in place today will continue to be between MPC and MPLX. And as Mike highlighted earlier, to the extent that there's an opportunity to expand volumes to supply additional locations for 7-Eleven, there could be a potential for the MPLX assets to be even more highly utilized. But again, that would be between MPC and MPLX.

Very helpful. And then just follow-up, really, just a question around G&P. I think on the parent call, you mentioned long-term initiatives around logistics and G&P with -- Mike, I think you made a reference to an emphasis on getting to a portfolio that protects downside. Can you talk about what kind of initiatives that could be specific to G&P as it relates to that comment? Is it adding volume protections? Are there existing volume protections in G&P that could be expanded or maybe just some context there?

Yes, Tristan, the context for G&P applies to all of our assets, whether it's L&S or refining, G&P, et cetera. It's just that we want to go through a pretty deliberate evaluation of the portfolio and really stress test where we think these assets will be for the long term and whether they can contribute free cash flow generation. I mean prior to COVID, I would tell you, every meeting we were at, we would get asked the question particularly about Northeast G&P. And our position was that we believe that area to be sustaining and/or slight growth. Now that we're post-COVID, and I think you've heard from a lot of the producers, we think something very similar that -- so pre and post in that area hasn't changed a lot of our outlook. But all of the other assets, and I've said this publicly a lot, we're in 8 basins at this point. And we just want to do a pretty thorough look at all those. At the same time, some people have asked us, are we going to divest assets, et cetera, and our answer has typically been the current environment is not very conducive to divesting G&P assets with the pressure on gas prices where they are today. So the line that I've used many times is we're not going to give the assets away. We're going to see if they have other values to other players. In the meantime, the portfolio will be kicking off free cash. I mean we've tried to put ourselves in a position capital-wise that all of our assets will be kicking off of free cash so that we are not in a must-do environment for any issues. So the balance sheet is strong. The earnings profile, I hope people got to see, is stable, especially in this pretty tough quarter. And at the same time, we're going to continue to evaluate all the assets going forward and applies to G&P as well as L&S and all the other assets that we have.

And our last question comes from Harry Mateer from Barclays.

Yes. First one just on leverage. I know the partnership is long targeted debt to EBITDA of around 4x. I'm just wondering, with the broader midstream industry generally pulling leverage targets lower, has anything changed in your mind about that 4x leverage number being the right one for the partnership. Or are you maybe thinking about migrating that low over time, perhaps even as a way to help maintain the investment-grade profile at the parent company when you look at consolidated metrics?

Yes, Harry, this is Pam. And yes, we have been right around 4x, and we have also indicated that over the long term, we think 3.5x would be a target for us. And so as we move into a free cash flow generation situation after funding both capital and distributions, one of the increased financial flexibility opportunities we would have would be to reduce debt. So it's something that clearly we're seeing across the midstream space, directionally lowering debt to provide more financial flexibility. And so that's what we would have in mind.

And Harry, it's Mike. I'll just add. Our priority is to get to free cash flow, which gives us the optionality and flexibility, as Pam stated, to make a decision, whether it's debt or whether it's unit buyback or other choices. But -- so our priority is to make sure that we get ourselves into that position where we're generating cash beyond the distribution and beyond the capital need.

Okay. And then just as my follow-up. So on the free cash flow, I mean, how should we think about the target to be free cash flow positive after distributions next year? Is that something that you envision as being more of a corporate objective year after year? Or more just a short term target, and there could be some flexibility around that? Or is it going to be something that's more durable?

Right now I would say it's more durable. At the end of the day, the market has continued to evolve. And in today's marketplace, generating free cash flow, I think, is what investors are looking for. And as I just mentioned, not to repeat myself, it will put us in a nice flexibility position. So yes, so we're not thinking of it as a short-term entity. We're thinking of it as a longer-term structural change that's occurred in the midstream space.

And with that mark, we have no more questions. So thank you for joining us today, and thank you for your interest in MPLX. Should you have additional questions or would you like clarification on any of the topics discussed this morning, members of our team will be available to help out after this call. Thank you so much. And operator, I'll turn it back to you.

Yes, ma'am. Today's call has concluded. You may disconnect at this time, and thank you for joining, and have a wonderful day.