MPLX LP Management's Discussion and Analysis of Financial Condition and Results of Operations should also be read in conjunction with the unaudited consolidated financial statements and accompanying footnotes included under Item 1. Financial Statements and in conjunction with our Annual Report on Form 10-K for the year endedDecember 31, 2019 .
Disclosures Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q, particularly Management's Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures about Market Risk, includes forward-looking statements that are subject to risks, contingencies or uncertainties. You can identify forward-looking statements by words such as "anticipate," "believe," "commitment," "could," "design," "estimate," "expect," "forecast," "goal," "guidance," "imply," "intend," "may," "objective," "opportunity," "outlook," "plan," "policy," "position," "potential," "predict," "priority," "project," "proposition," "prospective," "pursue," "seek," "should," "strategy," "target," "will," "would" or other similar expressions that convey the uncertainty of future events or outcomes.
Forward-looking statements include, among other things, statements regarding:
• future levels of revenues and other income, income from operations, net
income attributable to MPLX LP , earnings per unit, Adjusted EBITDA or DCF(see the Non-GAAP Financial Information section below for the definitions
of Adjusted EBITDA and DCF);
• future levels of capital, environmental or maintenance expenditures,
general and administrative and other expenses;
• the success or timing of completion of ongoing or anticipated capital or
maintenance projects;
• the amount and timing of future distributions; and
• the anticipated effects of actions of third parties such as competitors,
activist investors or federal, foreign, state or local regulatory
authorities or plaintiffs in litigation.
Our forward-looking statements are not guarantees of future performance and you
should not rely unduly on them, as they involve risks, uncertainties and
assumptions that we cannot predict. Material differences between actual results
and any future performance suggested in our forward-looking statements could
result from a variety of factors, including the following:
• the effects of the outbreak of COVID-19 and the adverse impact thereof on
our business, financial condition, results of operations and cash flows,
including our growth, operating costs, labor availability, logistical
capabilities, customer demand for our services and industry demand
generally, cash position, taxes, the price of our securities and trading
markets with respect thereto, our ability to access capital markets, and
the global economy and financial markets generally;
• Marathon Petroleum Corporation's ("MPC") ability to achieve its strategic
objectives and the effects of those strategic decisions on us;
• the risk that anticipated opportunities and any other synergies from or
anticipated benefits of the
not be fully realized or may take longer to realize than expected,
including whether the transaction will be accretive within the expected
timeframe or at all;
• disruption from the ANDX acquisition making it more difficult to maintain
relationships with customers, employees or suppliers;
• risks relating to any unforeseen liabilities of ANDX;
• further impairments;
• negative capital market conditions, including an increase of the current
yield on common units;
• the ability to achieve strategic and financial objectives, including with
respect to distribution coverage, future distribution levels, proposed
projects and completed transactions;
• the success of MPC's portfolio optimization, including the ability tocomplete any divestitures on commercially reasonable terms and/or within
the expected timeframe, and the effects of any such divestitures on the
business, financial condition, results of operations and cash flows;
• adverse changes in laws including with respect to tax and regulatory matters;
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• the adequacy of capital resources and liquidity, including the availability
of sufficient cash flow to pay distributions and access to debt on
commercially reasonable terms, and the ability to successfully execute
business plans, growth strategies and self-funding models;
• the timing and extent of changes in commodity prices and demand for crude
oil, refined products, feedstocks or other hydrocarbon-based products;
• volatility in or degradation of market and industry conditions as a result
of the COVID-19 pandemic, other infectious disease outbreaks or otherwise;
• changes to the expected construction costs and timing of projects and
planned investments, and the ability to obtain regulatory and other
approvals with respect thereto;
• completion of midstream infrastructure by competitors;
• disruptions due to equipment interruption or failure, including electrical
shortages and power grid failures;
• the suspension, reduction or termination of MPC's obligations under MPLX's
commercial agreements;
• modifications to financial policies, capital budgets, and earnings and
distributions;
• the ability to manage disruptions in credit markets or changes to credit
ratings;
• compliance with federal and state environmental, economic, health andsafety, energy and other policies and regulations or enforcement actions
initiated thereunder;
• adverse results in litigation;
• the reliability of processing units and other equipment;
• the effect of restructuring or reorganization of business components;
• the potential effects of changes in tariff rates on our business, financial
condition, results of operations and cash flows;
• foreign imports and exports of crude oil, refined products, natural gas and
NGLs;
• changes in producer customers' drilling plans or in volumes of throughput
of crude oil, natural gas, NGLs, refined products or other
hydrocarbon-based products;
• non-payment or non-performance by our producer and other customers;
• changes in the cost or availability of third-party vessels, pipelines,
railcars and other means of transportation for crude oil, natural gas,
NGLs, feedstocks and refined products;
• the price, availability and acceptance of alternative fuels and
alternative-fuel vehicles and laws mandating such fuels or vehicles;
• actions taken by our competitors, including pricing adjustments and theexpansion and retirement of pipeline capacity, processing, fractionation
and treating facilities in response to market conditions;
• expectations regarding joint venture arrangements and other acquisitions or
divestitures of assets;
• midstream and refining industry overcapacity or under capacity;
• accidents or other unscheduled shutdowns affecting our machinery,
pipelines, processing, fractionation and treating facilities or equipment,
or those of our suppliers or customers;
• acts of war, terrorism or civil unrest that could impair our ability to
gather, process, fractionate or transport crude oil, natural gas, NGLs or
refined products; and
• political pressure and influence of environmental groups upon policies and
decisions related to the production, gathering, refining, processing,
fractionation, transportation and marketing of crude oil or other
feedstocks, refined products, natural gas, NGLs or other hydrocarbon-based
products.
For additional risk factors affecting our business, see the risk factors
described in our Annual Report on Form 10-K for the year ended
MPLX OVERVIEW
We are a diversified, large-cap MLP formed by MPC, that owns and operates
midstream energy infrastructure and logistics assets, and provides fuels
distribution services. We are engaged in the transportation, storage and
distribution of crude oil and refined petroleum products; the gathering,
processing and transportation of natural gas; and the gathering, transportation,
fractionation, storage and marketing of NGLs. Our operations are conducted in
our Logistics and Storage and Gathering and Processing segments.
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SIGNIFICANT FINANCIAL AND OTHER HIGHLIGHTS
Significant financial highlights including revenues and other income, income from operations, net income, adjusted EBITDA attributable to MPLX and DCF attributable to GP and LP unitholders for the three months endedJune 30, 2020 andJune 30, 2019 are shown in the chart below. These results include the recast of ANDX financial information into MPLX's financial information as a result of the Merger. See the Non-GAAP Financial Information section below for the definitions of Adjusted EBITDA and DCF and the Results of Operations section for further details regarding changes in these metrics. [[Image Removed: q2consolidatedhighlights.jpg]]
(1) Q2 2019 includes Adjusted EBITDA attributable to Predecessor and portion of
DCF adjustments attributable to Predecessor.
Other Highlights RECENT DEVELOPMENTS
• On
owned subsidiary of MPC, in which MPLX agreed to transfer the Western
wholesale distribution business that it acquired as a result of its
acquisition of ANDX to MPC in exchange for the redemption of
of MPLX common units held by WRSW. The Redemption Agreement was approved
by the MPLX board of directors following the approval of the terms of the
transaction by its independent conflicts committee. The transaction closed
on
• Announced a second quarter distribution rate of
CURRENT ECONOMIC ENVIRONMENT
The outbreak of COVID-19 and its development into a pandemic inMarch 2020 has resulted in significant economic disruption globally. Actions taken by various governmental authorities, individuals and companies around the world to prevent the spread of COVID-19 through social distancing have restricted travel, many business operations, public gatherings and the overall level of individual movement and in-person interaction across the globe. This has significantly reduced global economic activity and resulted in a decline in the demand for products for which we provide midstream services. Macroeconomic conditions and global geopolitical events have also resulted in significant price volatility related to those aforementioned products.
We are actively responding to the impacts that these matters are having on our business by:
• Canceling or delaying certain capital expenditures that we had expected to
make in 2020.
• Taking actions to reduce operating expenses across the business.
• Continuing to evaluate and high-grade our capital portfolio
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Many uncertainties remain with respect to COVID-19, including its resulting economic effects, and we are unable to predict the ultimate economic impacts from COVID-19 and how quickly national economies can recover once the pandemic ultimately subsides. However, the adverse impact will likely continue to have an impact on our business and our customers' businesses. We believe we have proactively addressed many of the known impacts of COVID-19 to the extent possible and will strive to continue to do so, but there can be no guarantee the measures will be fully effective.
NON-GAAP FINANCIAL INFORMATION
Our management uses a variety of financial and operating metrics to analyze our performance. These metrics are significant factors in assessing our operating results and profitability and include the non-GAAP financial measures of Adjusted EBITDA and DCF. The amount of Adjusted EBITDA and DCF generated is considered by the board of directors of our general partner in approving MPLX's cash distributions. We define Adjusted EBITDA as net income adjusted for: (i) depreciation and amortization; (ii) provision/(benefit) for income taxes; (iii) amortization of deferred financing costs; (iv) extinguishment of debt; (v) non-cash equity-based compensation; (vi) impairment expense; (vii) net interest and other financial costs; (viii) income/(loss) from equity method investments; (ix) distributions and adjustments related to equity method investments; (x) unrealized derivative gains/(losses); (xi) acquisition costs; (xii) noncontrolling interest; and (xiii) other adjustments as deemed necessary. We also use DCF, which we define as Adjusted EBITDA adjusted for: (i) deferred revenue impacts; (ii) net interest and other financial costs; (iii) maintenance capital expenditures; (iv) equity method investment capital expenditures paid out; and (v) other non-cash items. MPLX makes a distinction between realized and unrealized gains and losses on derivatives. During the period when a derivative contract is outstanding, changes in the fair value of the derivative are recorded as an unrealized gain or loss. When a derivative contract matures or is settled, the previously recorded unrealized gain or loss is reversed and the realized gain or loss of the contract is recorded. We believe that the presentation of Adjusted EBITDA and DCF provides useful information to investors in assessing our financial condition and results of operations. The GAAP measures most directly comparable to Adjusted EBITDA and DCF are net income and net cash provided by operating activities. Adjusted EBITDA and DCF should not be considered alternatives to GAAP net income or net cash provided by operating activities. Adjusted EBITDA and DCF have important limitations as analytical tools because they exclude some but not all items that affect net income and net cash provided by operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Adjusted EBITDA and DCF should not be considered in isolation or as substitutes for analysis of our results as reported under GAAP. Additionally, because Adjusted EBITDA and DCF may be defined differently by other companies in our industry, our definitions of Adjusted EBITDA and DCF may not be comparable to similarly titled measures of other companies, thereby diminishing their utility. For a reconciliation of Adjusted EBITDA and DCF to their most directly comparable measures calculated and presented in accordance with GAAP, see Results of Operations.
Management also utilizes Segment Adjusted EBITDA in evaluating the financial performance of our segments. The use of this measures allows investors to understand how management evaluates financial performance to make operating decisions and allocate resources.
COMPARABILITY OF OUR FINANCIAL RESULTS
Our acquisitions have impacted comparability of our financial results (see Note 3 of the Notes to Consolidated Financial Statements).
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RESULTS OF OPERATIONS
The following tables and discussion are a summary of our results of operations for the three and six months endedJune 30, 2020 and 2019, including a reconciliation of Adjusted EBITDA and DCF from "Net income" and "Net cash provided by operating activities," the most directly comparable GAAP financial measures. Prior period financial information has been retrospectively adjusted for common control transactions. Three Months Ended June 30, Six Months Ended June 30, (In millions) 2020 2019 Variance 2020 2019 Variance Total revenues and other income(1)$ 2,081 $ 2,210 $ (129 ) $ 3,073 $ 4,445 $ (1,372 ) Costs and expenses: Cost of revenues (excludes items below) 315 353 (38 ) 683 692 (9 ) Purchased product costs 87 166 (79 ) 222 360 (138 ) Rental cost of sales 33 29 4 68 66 2 Rental cost of sales - related parties 41 36 5 87 79 8 Purchases - related parties 280 313 (33 ) 556 591 (35 ) Depreciation and amortization 321 313 8 646 614 32 Impairment expense - - - 2,165 - 2,165 General and administrative expenses 96 90 6 193 191 2 Other taxes 30 25 5 61 55 6 Total costs and expenses 1,203 1,325 (122 ) 4,681 2,648 2,033 Income/(loss) from operations 878 885 (7 ) (1,608 ) 1,797 (3,405 ) Related party interest and other financial costs 1 2 (1 ) 4 3 1 Interest expense, net of amounts capitalized 206 214 (8 ) 417 428 (11 ) Other financial costs 16 13 3 32 22 10 Income/(loss) before income taxes 655 656 (1 ) (2,061 ) 1,344 (3,405 ) (Benefit)/provision for income taxes - (1 ) 1 - (2 ) 2 Net income/(loss) 655 657 (2 ) (2,061 ) 1,346 (3,407 ) Less: Net income attributable to noncontrolling interests 7 6 1 15 12 3 Less: Net income attributable to Predecessor - 169 (169 ) - 349 (349 ) Net income/(loss) attributable to MPLX LP 648 482 166 (2,076 ) 985 (3,061 ) Adjusted EBITDA attributable toMPLX LP (excluding Predecessor results)(2) 1,227 920 307 2,521 1,850 671 Adjusted EBITDA attributable toMPLX LP (including Predecessor results)(3) N/A 1,249 N/A N/A 2,512 N/A DCF attributable to GP and LP unitholders (including Predecessor results)(3)$ 996 $ 975 $ 21 $ 2,043 $ 1,966 $ 77
(1) The six months ended
approximately
(2) Non-GAAP measure. See reconciliation below to the most directly comparable
GAAP measures. Excludes adjusted EBITDA and DCF adjustments attributable to
Predecessor.
(3) Non-GAAP measure. See reconciliation below to the most directly comparable
GAAP measures. Includes adjusted EBITDA and DCF adjustments attributable to
Predecessor.
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Three Months Ended June 30, Six Months Ended June 30,
(In millions) 2020 2019 Variance 2020 2019 Variance
Reconciliation of Adjusted
EBITDA attributable to MPLX
LP and DCF attributable to
GP and LP unitholders from
Net income:
Net income $ 655 $ 657 $ (2 ) $ (2,061 ) $ 1,346 $ (3,407 )
Provision for income taxes - (1 ) 1 - (2 ) 2
Amortization of deferred
financing costs 15 12 3 29 19 10
Net interest and other
financial costs 208 217 (9 ) 424 434 (10 )
Income from operations 878 885 (7 ) (1,608 ) 1,797 (3,405 )
Depreciation and
amortization 321 313 8 646 614 32
Non-cash equity-based
compensation 3 5 (2 ) 8 12 (4 )
Impairment expense - - - 2,165 - 2,165
(Income)/loss from equity
method investments (89 ) (83 ) (6 ) 1,095 (160 ) 1,255
Distributions/adjustments
related to equity method
investments 115 132 (17 ) 239 254 (15 )
Unrealized derivative
losses/(gains)(1) 6 - 6 (9 ) 4 (13 )
Acquisition costs - 4 (4 ) - 5 (5 )
Other 1 - 1 2 - 2
Adjusted EBITDA 1,235 1,256 (21 ) 2,538 2,526 12
Adjusted EBITDA attributable
to noncontrolling interests (8 ) (7 ) (1 ) (17 ) (14 ) (3 )
Adjusted EBITDA attributable
to Predecessor(2) - (329 ) 329 - (662 ) 662
Adjusted EBITDA attributable
to MPLX LP(3) 1,227 920 307 2,521 1,850 671
Deferred revenue impacts 40 22 18 63 31 32
Net interest and other
financial costs (208 ) (217 ) 9 (424 ) (434 ) 10
Maintenance capital
expenditures (33 ) (62 ) 29 (67 ) (99 ) 32
Maintenance capital
expenditures reimbursements 6 9 (3 ) 20 16 4
Equity method investment
capital expenditures paid
out (4 ) (4 ) - (11 ) (8 ) (3 )
Other (1 ) 10 (11 ) 3 10 (7 )
Portion of DCF adjustments
attributable to
Predecessor(2) - 63 (63 ) - 132 (132 )
DCF 1,027 741 286 2,105 1,498 607
Preferred unit distributions (31 ) (32 ) 1 (62 ) (62 ) -
DCF attributable to GP and
LP unitholders 996 709 287 2,043 1,436 607
Adjusted EBITDA attributable
to Predecessor(2) - 329 (329 ) - 662 (662 )
Portion of DCF adjustments
attributable to
Predecessor(2) - (63 ) 63 - (132 ) 132
DCF attributable to GP and
LP unitholders (including
Predecessor results) $ 996 $ 975 $ 21 $ 2,043 $ 1,966 $ 77 (1) MPLX makes a distinction between realized and unrealized gains and losses on
derivatives. During the period when a derivative contract is outstanding,
changes in the fair value of the derivative are recorded as an unrealized
gain or loss. When a derivative contract matures or is settled, the
previously recorded unrealized gain or loss is reversed and the realized gain
or loss of the contract is recorded.
(2) The adjusted EBITDA and DCF adjustments related to Predecessor are excluded
from adjusted EBITDA attributable to
LP unitholders prior to the acquisition date.
(3) For the three months ended
respectively. For the three months ended
segments made up
attributable to
2020, the L&S and G&P segments made up $1,711 million and $810
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million of Adjusted EBITDA attributable toMPLX LP , respectively. For the six months endedJune 30, 2019 , the L&S and G&P segments made up$1,129 million and$721 million of Adjusted EBITDA attributable toMPLX LP , respectively. Six Months Ended June 30, (In millions) 2020 2019
Variance
Reconciliation of Adjusted EBITDA attributable toMPLX LP and DCF attributable to GP and LP unitholders from Net cash provided by operating activities: Net cash provided by operating activities$ 2,114 $ 1,954 $ 160 Changes in working capital items 12 112 (100 ) All other, net (26 ) (7 ) (19 ) Non-cash equity-based compensation 8 12 (4 ) Net (loss)/gain on disposal of assets (1 ) 2 (3 ) Net interest and other financial costs 424 434 (10 ) Current income taxes 1 - 1 Asset retirement expenditures - 1 (1 ) Unrealized derivative (gains)/losses(1) (9 ) 4 (13 ) Acquisition costs - 5 (5 ) Other adjustments to equity method investment distributions 13 9 4 Other 2 - 2 Adjusted EBITDA 2,538 2,526 12 Adjusted EBITDA attributable to noncontrolling interests (17 ) (14 ) (3 ) Adjusted EBITDA attributable to Predecessor(2) - (662 ) 662 Adjusted EBITDA attributable to MPLX LP(3) 2,521 1,850 671 Deferred revenue impacts 63 31 32 Net interest and other financial costs (424 ) (434 ) 10 Maintenance capital expenditures (67 ) (99 ) 32 Maintenance capital expenditures reimbursements 20 16 4 Equity method investment capital expenditures paid out (11 ) (8 ) (3 ) Other 3 10 (7 ) Portion of DCF adjustments attributable to Predecessor(2) - 132 (132 ) DCF 2,105 1,498 607 Preferred unit distributions (62 ) (62 ) - DCF attributable to GP and LP unitholders 2,043 1,436 607 Adjusted EBITDA attributable to Predecessor(2) - 662 (662 ) Portion of DCF adjustments attributable to Predecessor(2) - (132 ) 132 DCF attributable to GP and LP unitholders (including Predecessor results)$ 2,043 $ 1,966
$ 77
(1) MPLX makes a distinction between realized and unrealized gains and losses on
derivatives. During the period when a derivative contract is outstanding,
changes in the fair value of the derivative are recorded as an unrealized
gain or loss. When a derivative contract matures or is settled, the
previously recorded unrealized gain or loss is reversed and the realized gain
or loss of the contract is recorded.
(2) The adjusted EBITDA and DCF adjustments related to Predecessor are excluded
from adjusted EBITDA attributable to
LP unitholders prior to the acquisition date.
(3) For the six months ended
respectively. For the six months ended June 30, 2019 , the L&S and G&P
segments made up $1,129 million and $721 million of Adjusted EBITDA
attributable to MPLX LP , respectively.
Three months ended
Total revenues and other income decreased$129 million in the second quarter of 2020 compared to the same period of 2019. This decrease was primarily due to lower G&P fees from lower volumes of$46 million as well as an unfavorable impact from lower prices of$87 million . There were also decreases due to lower L&S pipeline, terminal and storage volumes, including decreased throughputs on our Explorer and Bakken pipeline equity method investments. These decreases were offset by favorable L&S rate impacts as well as increased volume deficiency payments, favorable impacts from increased marine 44
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equipment and increased volumes in our
Cost of Revenues decreased$38 million in the second quarter of 2020 compared to the same period of 2019, primarily due to lower operating costs due to lower throughput, lower project-related spend and other miscellaneous expense decreases. Purchased product costs decreased$79 million in the second quarter of 2020 compared to the same period of 2019. This was primarily due to lower prices of$49 million in the Southwest and Southern Appalachia and lower costs from lower volumes of$36 million in the Southwest. This was partially offset by an increase of$6 million in unrealized derivative losses from prior year. Purchases - related parties decreased$33 million in the second quarter of 2020 compared to the same period of 2019. This was primarily due to lower project spend and product purchases from MPC. Depreciation and amortization expense increased$8 million in the second quarter of 2020 compared to the same period of 2019, primarily due to property, plant and equipment placed in service in the second half of 2019 and the first six months of 2020.
Net interest expense and other financial costs decreased
General and administrative expenses increased$6 million in the second quarter of 2020 compared to the same period of 2019 primarily due to increased employee costs from MPC.
Six months ended
Total revenues and other income decreased$1,372 million in the first six months of 2020 compared to the same period of 2019. The large decrease was driven by our ownership inMarkWest Utica EMG, L.L.C. ("MarkWest Utica EMG"), our indirect ownership inOhio Gathering Company, L.L.C. through our investment ofMarkWest Utica EMG and our ownership inUintah Basin Field Services, L.L.C. , as we recognized impairments related to these investments in the first quarter of 2020 in the amount of$1,264 million . Also contributing to the decrease was lower G&P fees from lower volumes of$6 million and an unfavorable impact from lower prices of$171 million . There were also decreases due to lower L&S pipeline, terminal and storage volumes, including decreased throughputs on our Explorer and Bakken pipeline equity method investments. These decreases were offset by favorable L&S rate impacts as well as increased volume deficiency payments, favorable impacts from increased marine equipment and increased volumes in ourSherwood Midstream LLC joint venture due to additional plants coming online in the second half of 2019. Cost of Revenues decreased$9 million in the first six months of 2020 compared to the same period of 2019, primarily due to lower project-related costs, which include repairs, maintenance and operating costs in the L&S and G&P segments. Purchased product costs decreased$138 million in the first six months of 2020 compared to the same period of 2019. This was primarily due to lower prices of$94 million in the Southwest and Southern Appalachia and$31 million from lower volumes in the Southwest. There was also a decrease of$13 million due to unrealized derivative gains in the current year compared to unrealized derivative losses in the prior year. Rental cost of sales - related parties increased$8 million in the first six months of 2020 compared to the same period of 2019. This was primarily due to project costs incurred, partially offset by lower operating costs due to reduced throughput. Purchases - related parties decreased$35 million in the first six months of 2020 compared to the same period of 2019. This was primarily due to lower product purchases from MPC, lower project spend and decreased other miscellaneous costs from MPC. Depreciation and amortization expense increased$32 million in the first six months of 2020 compared to the same period of 2019, primarily due to property, plant and equipment placed in service in the second half of 2019 and the first six months of 2020. Impairment expense increased$2,165 million in the first six months of 2020 compared to the same period of 2019. During the first quarter of 2020 we recorded impairment expense for goodwill, intangible assets and property, plant and equipment of$1,814 million ,$177 million and$174 million , respectively. The impairment of goodwill related to our Eastern G&P reporting 45
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unit while the intangible asset and property, plant and equipment impairments relate to certain assets in our Southwest region. The impairments were primarily driven by the slowing of drilling activity, which has reduced production growth forecasts from our producer customers.
Other taxes increased
SEGMENT RESULTS
We classify our business in the following reportable segments: L&S and G&P. Segment Adjusted EBITDA represents Adjusted EBITDA attributable to the reportable segments. Amounts included in net income and excluded from Segment Adjusted EBITDA include: (i) depreciation and amortization; (ii) provision/(benefit) for income taxes; (iii) amortization of deferred financing costs; (iv) extinguishment of debt; (v) non-cash equity-based compensation; (vi) impairment expense; (vii) net interest and other financial costs; (viii) income/(loss) from equity method investments; (ix) distributions and adjustments related to equity method investments; (x) unrealized derivative gains/(losses); (xi) acquisition costs; (xii) noncontrolling interests; and (xiii) other adjustments as deemed necessary. These items are either: (i) believed to be non-recurring in nature; (ii) not believed to be allocable or controlled by the segment; or (iii) are not tied to the operational performance of the segment. The tables below present information about Segment Adjusted EBITDA for the reported segments for the three and six months endedJune 30, 2020 and 2019. Prior period financial information has been retrospectively adjusted for common control transactions. 46
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L&S Segment
[[Image Removed: q2lssegmenthighlights.jpg]](1) Includes adjusted EBITDA attributable to Predecessor.
Three Months Ended June 30, Six Months Ended June 30,
(In millions) 2020 2019 Variance 2020 2019 Variance
Service revenue $ 931 $ 922 $ 9 $ 1,935 $ 1,811 $ 124
Rental income 246 296 (50 ) 488 631 (143 )
Product related revenue 21 20 1 40 35 5
Income from equity method
investments 40 54 (14 ) 90 99 (9 )
Other income 52 16 36 103 28 75
Total segment revenues and
other income 1,290 1,308 (18 ) 2,656 2,604 52
Cost of revenues 190 219 (29 ) 428 445 (17 )
Purchases - related parties 211 227 (16 ) 410 417 (7 )
Depreciation and
amortization 138 134 4 276 260 16
General and administrative
expenses 52 42 10 104 93 11
Other taxes 18 11 7 34 27 7
Segment income from
operations 681 675 6 1,404 1,362 42
Depreciation and
amortization 138 134 4 276 260 16
Income from equity method
investments (40 ) (54 ) 14 (90 ) (99 ) 9
Distributions/adjustments
related to equity method investments 57 60 (3 ) 114 114 - Acquisition costs - 4 (4 ) - 5 (5 ) Non-cash equity-based compensation 2 2 - 5 7 (2 ) Other 1 - 1 2 - 2 Adjusted EBITDA attributable to Predecessor - (251 ) 251 - (520 ) 520 Segment adjusted EBITDA(1) 839 570 269 1,711 1,129 582 Capital expenditures 108 230 (122 ) 292 428 (136 )
Investments in
unconsolidated affiliates
(1) See the Reconciliation of Adjusted EBITDA attributable to
attributable to GP and LP unitholders from Net income table for the
reconciliation to the most directly comparable GAAP measure.
Three months ended
Service revenue increased$9 million in the second quarter of 2020 compared to the same period of 2019. This was primarily due to a$28 million increase due to the reclassification of lease income between service revenue, rental income and other income based on modifications to lease contracts and a$12 million increase from additional marine equipment. There was also in increase in volume deficiency payments, favorable price impacts and other miscellaneous items. These increases were partially offset by reduced pipeline and storage volumes. 47
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Rental income decreased$50 million in the second quarter of 2020 compared to the same period of 2019, primarily due to a decrease of$66 million due to the reclassification of lease income between service revenue, rental income and other income based on modifications to lease contracts. The decrease was partially offset by an increase of$7 million from increased terminal storage revenue as well as other miscellaneous increases. Income from equity method investments decreased$14 million in the second quarter of 2020 compared to the same period of 2019, primarily due to decreased throughput on the Explorer and Bakken pipelines due to declining demand during the second quarter of 2020.
Other income increased
Cost of revenues decreased$29 million in the second quarter of 2020 compared to the same period of 2019, primarily due to lower operating costs due to lower throughput, lower project-related spend and other miscellaneous expense decreases. Purchases - related parties decreased$16 million in the second quarter of 2020 compared to the same period of 2019, primarily due to lower project spend and other miscellaneous expenses. General and administrative expenses increased$10 million in the second quarter of 2020 compared to the same period of 2019, primarily due to increased employee costs from MPC.
Six months ended
Service revenue increased$124 million in the first six months of 2020 compared to the same period of 2019. This was primarily due to an$83 million increase due to the reclassification of lease income between service revenue, rental income and other income based on modifications to lease contracts and a$25 million increase from additional marine equipment. There were also increases related to volume deficiency payments and favorable price impacts partially offset by unfavorable volume impacts. Rental income decreased$143 million in the first six months of 2020 compared to the same period of 2019, primarily due to a decrease of$159 million due to the reclassification of lease income between service revenue, rental income and other income based on modifications to lease contracts. The decrease was partially offset by an increase of$13 million from increased terminal storage revenue. Income from equity method investments decreased$9 million in the first six months of 2020 compared to the same period of 2019, primarily due to decreased throughput on the Explorer and Bakken pipelines due to declining demand during the second quarter of 2020. Other income increased$75 million in the first six months of 2020 compared to the same period of 2019, primarily due to an increase of$76 million due to the reclassification of lease income between service revenue, rental income and other income based on modifications to lease contracts. Cost of revenues decreased$17 million in the first six months of 2020 compared to the same period of 2019, primarily due to lower operating costs due to lower throughput, lower project-related spend and other miscellaneous expense decreases. Purchases - related parties decreased$7 million in the first six months of 2020 compared to the same period of 2019, primarily due to lower project spend and other miscellaneous expenses. Depreciation and amortization increased$16 million in the first six months of 2020 compared to the same period of 2019, primarily due to property, plant and equipment placed in service in the second half of 2019 and the first six months of 2020.
General and administrative expenses increased
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G&P Segment
[[Image Removed: q2gpsegmenthighlights.jpg]](1) Includes adjusted EBITDA attributable to Predecessor.
Three Months Ended June 30, Six Months Ended June 30,
(In millions) 2020 2019 Variance 2020 2019 Variance
Service revenue $ 489 $ 544 $ (55 ) $ 1,025 $ 1,072 $ (47 )
Rental income 89 83 6 177 172 5
Product related revenue 151 231 (80 ) 373 507 (134 )
Income/(loss) from equity
method investments 49 29 20 (1,185 ) 61 (1,246 )
Other income 13 15 (2 ) 27 29 (2 )
Total segment revenues and
other income/(loss) 791 902 (111 ) 417 1,841 (1,424 )
Cost of revenues 199 199 - 410 392 18
Purchased product costs 87 166 (79 ) 222 360 (138 )
Purchases - related parties 69 86 (17 ) 146 174 (28 )
Depreciation and
amortization 183 179 4 370 354 16
Impairment expense - - - 2,165 - 2,165
General and administrative
expenses 44 48 (4 ) 89 98 (9 )
Other taxes 12 14 (2 ) 27 28 (1 )
Segment income/(loss) from
operations 197 210 (13 ) (3,012 ) 435 (3,447 )
Depreciation and
amortization 183 179 4 370 354 16
Impairment expense - - - 2,165 - 2,165
(Income)/loss from equity
method investments (49 ) (29 ) (20 ) 1,185 (61 ) 1,246
Distributions/adjustments
related to equity method investments 58 72 (14 ) 125 140 (15 ) Unrealized derivative losses/(gains)(1) 6 - 6 (9 ) 4 (13 ) Non-cash equity-based compensation 1 3 (2 ) 3 5 (2 ) Adjusted EBITDA attributable to Predecessor - (78 ) 78 - (142 ) 142 Adjusted EBITDA attributable to noncontrolling interests (8 ) (7 ) (1 ) (17 ) (14 ) (3 ) Segment Adjusted EBITDA(2) 388 350 38 810 721 89 Capital expenditures 110 326 (216 ) 244 632 (388 )
Investments in
unconsolidated affiliates
(1) MPLX makes a distinction between realized and unrealized gains and losses on
derivatives. During the period when a derivative contract is outstanding,
changes in the fair value of the derivative are recorded as an unrealized
gain or loss. When a derivative contract matures or is settled, the
previously recorded unrealized gain or loss is reversed and the realized gain
or loss of the contract is recorded.
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(2) See the Reconciliation of Adjusted EBITDA attributable to
attributable to GP and LP unitholders from Net income table for the
reconciliation to the most directly comparable GAAP measure.
Three months ended
Service revenue decreased$55 million in the second quarter of 2020 compared to the same period of 2019. This was primarily due to lower fees from lower volumes in the Southwest, Bakken and Rockies of$38 million , a decrease due to lower prices in the Bakken of$2 million as well as other miscellaneous decreases. Rental income increased$6 million in the second quarter of 2020 compared to the same period of 2019. This was primarily due to higher rental income from higher volumes in the Marcellus. Product related revenue decreased$80 million in the second quarter of 2020 compared to the same period of 2019. This was primarily due to lower prices in all of the G&P regions of approximately$85 million and lower volumes in the Southwest of$34 million . This was partially offset by$20 million of volume increases in the Marcellus, Rockies and at our Javelina plant in the Southwest (this plant experienced downtime for maintenance in 2019), as well as other miscellaneous increases. Income from equity method investments increased$20 million in the second quarter of 2020 compared to the same period of 2019. This increase was due to lower basis differential amortization related toMarkWest Utica EMG as a result of impairments recorded in the first quarter of 2020 and an increase from theSherwood Midstream LLC joint venture due to additional plants coming online during the second half of 2019. Purchased product costs decreased$79 million in the second quarter of 2020 compared to the same period of 2019. This was primarily due to lower prices of$49 million in the Southwest and Southern Appalachia and lower costs from lower volumes of$36 million in the Southwest. This was partially offset by an increase of$6 million in unrealized derivative losses from prior year. Purchases - related parties decreased$17 million in the second quarter of 2020 compared to the same period of 2019, with this decrease primarily being attributable to aligning various expenses as a result of the ANDX acquisition and lower product purchases from MPC.
Six months ended
Service revenue decreased
Rental income increased$5 million in the first six months of 2020 compared to the same period of 2019. This was primarily due to fees from higher volumes in the Marcellus. Product related revenue decreased$134 million in the first six months of 2020 compared to the same period of 2019. This was primarily due to lower prices in all of the G&P regions of approximately$168 million and lower volumes of$21 million in the Southwest. This was partially offset by$21 million of volume increases in the Rockies and the Javelina plant in the Southwest (this plant experienced downtime for maintenance in 2019), as well as other miscellaneous increases. Income from equity method investments decreased$1,246 million in the first six months of 2020 compared to the same period of 2019. The large decrease was driven by our ownership inMarkWest Utica EMG , our indirect ownership inOhio Gathering Company, L.L.C. through our investment ofMarkWest Utica EMG and our ownership inUintah Basin Field Services, L.L.C. , as we recognized impairments related to these investments in the first quarter of 2020 in the amount of$1,264 million . This was partially offset by an increase in theSherwood Midstream LLC joint venture due to additional plants coming online during the second half of 2019. Cost of revenues increased$18 million in the first six months of 2020 compared to the same period of 2019. The majority of the increase is attributable to aligning various expenses as a result of the ANDX acquisition as well as higher repairs, maintenance and operating costs in the Marcellus offset by lower repairs, maintenance and operating costs in the Southwest, Southern Appalachia and Rockies. Purchased product costs decreased$138 million in the first six months of 2020 compared to the same period of 2019. This was primarily due to lower prices of$94 million in the Southwest and Southern Appalachia and$31 million from lower volumes in 50
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the Southwest. There was also a decrease of
Purchases - related parties decreased$28 million in the first six months of 2020 compared to the same period of 2019. This decrease is primarily attributable to aligning various expenses as a result of the ANDX acquisition and lower product purchases from MPC. Depreciation and amortization increased$16 million in the first six months of 2020 compared to the same period of 2019 primarily due to property, plant and equipment placed in service throughout the second half of 2019 and the first six months of 2020. Impairment expense increased$2,165 million in the first six months of 2020 compared to the same period of 2019. During the first quarter of 2020 we recorded impairment expense for goodwill, intangible assets and property, plant and equipment of$1,814 million ,$177 million and$174 million , respectively. The impairment of goodwill related to our Eastern G&P reporting unit while the intangible asset and property, plant and equipment impairments relate to certain assets in our Southwest region. The impairments were primarily driven by the slowing of drilling activity, which has reduced production growth forecasts from our producer customers.
General and administrative expenses decreased
SEASONALITY
The volume of crude oil and refined products transported and stored utilizing
our assets is directly affected by the level of supply and demand for crude oil
and refined products in the markets served directly or indirectly by our assets.
Many effects of seasonality on the L&S segment's revenues will be mitigated
through the use of our fee-based transportation and storage services agreements
with MPC that include minimum volume commitments.
Our G&P segment can be affected by seasonal fluctuations in the demand for
natural gas and NGLs and the related fluctuations in commodity prices caused by
various factors including variations in weather patterns from year to year. We
are able to manage the seasonality impacts through the execution of our
marketing strategy and via our storage capabilities. Overall, our exposure to
the seasonality fluctuations is declining due to our growth in fee-based
business.
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OPERATING DATA(1)
[[Image Removed: q2lspipelinethroughput.jpg]]
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
L&S
Pipeline throughput (mbpd)
Crude oil pipelines 2,733 3,242 2,971 3,174
Product pipelines 1,586 1,867 1,746 1,882
Total pipelines 4,319 5,109 4,717 5,056
Average tariff rates ($ per
barrel)(2)
Crude oil pipelines $ 0.99 $ 0.88 $ 0.96 $ 0.92
Product pipelines 0.84 0.75 0.81 0.72
Total pipelines $ 0.94 $ 0.83 $ 0.90 $ 0.84
Terminal throughput (mbpd) 2,420 3,287 2,693 3,253
Marine Assets (number in
operation)(3)
Barges 305 261 305 261
Towboats 23 23 23 23
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[[Image Removed: q2gpgatheringthroughput.jpg]][[Image Removed: q2gpprocessingthroughput.jpg]][[Image Removed: q2gpfractionationthroughput.jpg]]
Three Months Ended Three Months Ended
June 30, 2020 June 30, 2019
MPLX LP MPLX LP
MPLX LP(4) Operated(5) MPLX LP(4) Operated(5)
G&P
Gathering Throughput (MMcf/d)
Marcellus Operations 1,385 1,385 1,266 1,266
Utica Operations - 1,903 - 2,066
Southwest Operations 1,365 1,393 1,617 1,617
Bakken Operations 126 126 147 147
Rockies Operations 495 683 649 852
Total gathering throughput 3,371 5,490 3,679 5,948
Natural Gas Processed (MMcf/d)
Marcellus Operations 4,112 5,516 4,216 5,202
Utica Operations - 585 - 823
Southwest Operations 1,412 1,510 1,558 1,558
Southern Appalachian Operations 223 223 243 243
Bakken Operations 126 126 147 147
Rockies Operations 516 516 585 585
Total natural gas processed 6,389 8,476 6,749 8,558
C2 + NGLs Fractionated (mbpd)
Marcellus Operations(6) 464 464 440 440
Utica Operations(6) - 31 - 40
Southwest Operations 13 13 3 3
Southern Appalachian Operations(7) 12 12 12 12
Bakken Operations 19 19 21 21
Rockies Operations 4 4 3 3
Total C2 + NGLs fractionated(8) 512 543 479 519
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Six Months Ended Six Months Ended
June 30, 2020 June 30, 2019
MPLX LP MPLX LP
MPLX LP(4) Operated(5) MPLX LP(4) Operated(5)
G&P
Gathering Throughput (MMcf/d)
Marcellus Operations 1,402 1,402 1,274 1,274
Utica Operations - 1,852 - 2,087
Southwest Operations 1,461 1,497 1,600 1,600
Bakken Operations 141 141 150 150
Rockies Operations 544 729 644 839
Total gathering throughput 3,548 5,621 3,668 5,950
Natural Gas Processed (MMcf/d)
Marcellus Operations 4,155 5,519 4,185 5,175
Utica Operations - 616 - 820
Southwest Operations 1,530 1,595 1,578 1,578
Southern Appalachian Operations 233 233 239 239
Bakken Operations 141 141 150 150
Rockies Operations 528 528 578 578
Total natural gas processed 6,587 8,632 6,730 8,540
C2 + NGLs Fractionated (mbpd)
Marcellus Operations(6) 460 460 430 430
Utica Operations(6) - 33 - 43
Southwest Operations 14 14 10 10
Southern Appalachian Operations(7) 12 12 12 12
Bakken Operations 25 25 18 18
Rockies Operations 4 4 4 4
Total C2 + NGLs fractionated(8) 515 548 474 517
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
Pricing Information
Natural Gas NYMEX HH ($ per MMBtu) $ 1.76 $ 2.51 $ 1.81 $ 2.69
C2 + NGL Pricing ($ per gallon)(9) $ 0.34 $ 0.52 $
0.37
(1) Operating data is inclusive of operating data for ANDX.
(2) Average tariff rates calculated using pipeline transportation revenues
divided by pipeline throughput barrels.
(3) Represents total at end of period.
(4) This column represents operating data for entities that have been
consolidated into the MPLX financial statements.
(5) This column represents operating data for entities that have been
consolidated into the MPLX financial statements as well as operating data for
MPLX-operated equity method investments.
(6)
Fractionation is a subsidiary of MarkWest Liberty Midstream. MarkWest Liberty
Midstream and
and Utica regions, respectively. Marcellus Operations includes
Fractionation's portion utilized of the jointly owned Hopedale Fractionation
Complex. Utica Operations includes
the jointly owned
Midstream has the right to fractionation revenue and the obligation to pay
expenses related to 40 mbpd of capacity in the Hopedale 3 and Hopedale 4
fractionators.
(7) Includes NGLs fractionated for the Marcellus Operations and Utica Operations.
(8) Purity ethane makes up approximately 193 mbpd and 195 mbpd of total MPLX
Operated, fractionated products for the three months ended
2019, respectively, and approximately 191 mbpd and 192 mbpd of total
fractionated products for the six months ended
respectively. Purity ethane makes up approximately 186 mbpd and 189 mbpd of
total
of total fractionated products for the six months ended
2019, respectively.
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(9) C2 + NGL pricing based on Mont Belvieu prices assuming an NGL barrel of
approximately 35 percent ethane, 35 percent propane, six percent Iso-Butane,
12 percent normal butane and 12 percent natural gasoline.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Our cash and cash equivalents were$67 million atJune 30, 2020 and$15 million atDecember 31, 2019 . The change in cash, cash equivalents and restricted cash was due to the factors discussed below. Net cash provided by (used in) operating activities, investing activities and financing activities were as follows: Six Months Ended June 30, (In millions) 2020 2019 Net cash provided by (used in): Operating activities$ 2,114 $ 1,954 Investing activities (777 ) (1,439 ) Financing activities (1,285 ) (568 ) Total $ 52$ (53 ) Net cash provided by operating activities increased$160 million in the first six months of 2020 compared to the first six months of 2019, primarily due to increased net income of$22 million , excluding impairments, as well as other changes related to depreciation and amortization and changes in working capital items. Net cash used in investing activities decreased$662 million in the first six months of 2020 compared to the first six months of 2019, primarily due to decreased spending related to the capital budget, a return of capital from our investments in Wink to Webster and Whistler and decreased contributions to equity method investments. Financing activities were a$1,285 million use of cash in the first six months of 2020 compared to a$568 million use of cash in the first six months of 2019. The use of cash for the first six months of 2020 was primarily due to distributions of$1,445 million to common unitholders, distributions of$41 million to Series A preferred unitholders, distributions of$21 million to Series B preferred unitholders, distributions of$17 million to noncontrolling interests, repayment of$1,675 million on the MPLX Credit Agreement, payments of$7 million related to financing leases, and repayment of$3,302 million on the MPC Loan Agreement. These uses of cash were offset by borrowings of$2,500 million on the revolving credit facility,$2,708 million on the MPC Loan Agreement, and$20 million of contributions from MPC.
Debt and Liquidity Overview
Our outstanding borrowings at
June 30, 2020
MPLX LP :
Bank revolving credit facility $ 825
Term loan facility 1,000
Floating rate senior notes 2,000
Fixed rate senior notes 16,887
Consolidated subsidiaries:
MarkWest 23
ANDX 190
Financing lease obligations 13
Total 20,938
Unamortized debt issuance costs (100 )
Unamortized discount/premium (279 )
Amounts due within one year (3 )
Total long-term debt due after one year
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-------------------------------------------------------------------------------- Our intention is to maintain an investment grade credit profile. As ofJune 30, 2020 , the credit ratings on our senior unsecured debt were at or above investment grade level as follows: Rating Agency Rating Moody's Baa2 (negative outlook)Standard & Poor's BBB (negative outlook) Fitch BBB (negative outlook) The ratings reflect the respective views of the rating agencies. Although it is our intention to maintain a credit profile that supports an investment grade rating, there is no assurance that these ratings will continue for any given period of time. The ratings may be revised or withdrawn entirely by the rating agencies if, in their respective judgments, circumstances so warrant. The MPLX Credit Agreement and Term Loan Agreement contain certain representations and warranties, affirmative and restrictive covenants and events of default that we consider to be usual and customary for an agreement of this type. The financial covenant requires MPLX to maintain a ratio of Consolidated Total Debt as of the end of each fiscal quarter to Consolidated EBITDA (both as defined in the MPLX Credit Agreement) for the prior four fiscal quarters of no greater than 5.0 to 1.0 (or 5.5 to 1.0 during the six-month period following certain acquisitions). Consolidated EBITDA is subject to adjustments for certain acquisitions completed and capital projects undertaken during the relevant period. Other covenants restrict us and/or certain of our subsidiaries from incurring debt, creating liens on assets and entering into transactions with affiliates. As ofJune 30, 2020 , we were in compliance with the covenants, including the financial covenant with a ratio of Consolidated Total Debt to Consolidated EBITDA of 3.9 to 1.0. The agreements governing our debt obligations do not contain credit rating triggers that would result in the acceleration of interest, principal or other payments solely in the event that our credit ratings are downgraded. However, any downgrades in the credit ratings of our senior unsecured debt ratings to below investment grade ratings could, among other things, increase the applicable interest rates and other fees payable under the MPLX Credit Agreement and the Term Loan Agreement and may limit our ability to obtain future financing, including refinancing existing indebtedness.
Our liquidity totaled
June 30, 2020
Available
(In millions) Total Capacity Outstanding Borrowings Capacity
Bank revolving credit facility due 2024(1) $ 3,500 $ (825 ) $ 2,675
MPC Loan Agreement 1,500 - 1,500
Total liquidity $ 5,000 $ (825 ) 4,175
Cash and cash equivalents 67
Total liquidity $ 4,242 (1) Outstanding borrowings include less than
outstanding under this facility.
We expect our ongoing sources of liquidity to include cash generated from
operations and borrowings under the MPC Loan Agreement, the MPLX Credit
Agreement and access to capital markets. We believe that cash generated from
these sources will be sufficient to meet our short-term and long-term funding
requirements, including working capital requirements, capital expenditure
requirements, contractual obligations, and quarterly cash distributions. MPC
manages our cash and cash equivalents on our behalf directly with third-party
institutions as part of the treasury services that it provides to us under our
omnibus agreement. From time to time, we may also consider utilizing other
sources of liquidity, including the formation of joint ventures or sales of
non-strategic assets.
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Equity and Preferred Units Overview
Common units
The table below summarizes the changes in the number of units outstanding throughJune 30, 2020 : (In units) Balance atDecember 31, 2019 1,058,355,471 Unit-based compensation awards 253,291 Balance atJune 30, 2020 1,058,608,762 ATM MPLX expects the net proceeds, if any, from sales under our ATM Program will be used for general business purposes including repayment or refinancing of debt and funding for acquisitions, working capital requirements and capital expenditures. During the six months endedJune 30, 2020 , we issued no common units under our ATM program. As ofJune 30, 2020 ,$1.7 billion of common units remain available for issuance through the ATM Program.
Distributions
We intend to pay a minimum quarterly distribution to the holders of our common units of$0.2625 per unit, or$1.05 per unit on an annualized basis, to the extent we have sufficient cash from our operations after the establishment of cash reserves and the payment of costs and expenses, including reimbursements of expenses to our general partner. The amount of distributions paid under our policy and the decision to make any distributions is determined by our general partner, taking into consideration the terms of our partnership agreement. Such minimum distribution would equate to$278 million per quarter, or$1,112 million per year, based on the number of common units outstanding atJune 30, 2020 . OnJuly 28, 2020 , we announced the board of directors of our general partner had declared a distribution of$0.6875 per unit that will be paid onAugust 14, 2020 to unitholders of record onAugust 7, 2020 . This is consistent with the first quarter 2020 distribution of$0.6875 per unit and an increase of 3.0 percent over the second quarter 2019 distribution. This rate will also be received by Series A preferred unitholders. Although our partnership agreement requires that we distribute all of our available cash each quarter, we do not otherwise have a legal obligation to distribute any particular amount per common unit. Series B preferred unitholders are entitled to receive a fixed distribution of$68.75 per unit, per annum, payable semi-annually in arrears onFebruary 15 andAugust 15 , or the first business day thereafter, up to and includingFebruary 15, 2023 . AfterFebruary 15, 2023 , the holders of Series B preferred units are entitled to receive cumulative, quarterly distributions payable in arrears on the 15th day of February, May, August and November of each year, or the first business day thereafter, based on a floating annual rate equal to the three-month LIBOR plus 4.652 percent, in each case assuming a distribution is declared by the Board of Directors. Accordingly, a cash distribution payment totaling$21 million will be paid to Series B unitholders onAugust 17, 2020 . TexNew Mex units are entitled to receive quarterly distribution payments in an amount calculated using the distributable cash flow generated by a particular portion of the TexNew Mex pipeline system, in excess of a base amount and adjusted for previously agreed upon stipulations and contingencies. During the three months endedJune 30, 2020 a distribution of$2 million was earned as a result of increased volumes on the TexNew Mex pipeline due to the idling of MPC'sGallup, New Mexico refinery . The allocation of total quarterly cash distributions is as follows for the three and six months endedJune 30, 2020 and 2019. MPLX's distributions are declared subsequent to quarter end; therefore, the following table represents total cash distributions applicable to the period in which the distributions were earned. 57 -------------------------------------------------------------------------------- Three Months Ended June 30, Six Months Ended June 30, (In millions, except per unit data) 2020 2019 2020 2019 Distribution declared: Limited partner units - public $ 270$ 261 $ 540$ 452 Limited partner units - MPC 445 431 903 763Total LP distribution declared 715 692 1,443 1,215 Series A preferred units 21 21 41 41 Series B preferred units 10 21 21 21 Total distribution declared 746 734 1,505 1,277 Cash distributions declared per limited partner common unit$ 0.6875 $ 0.6675 $ 1.3750 $ 1.3250 Capital Expenditures Our operations are capital intensive, requiring investments to expand, upgrade, enhance or maintain existing operations and to meet environmental and operational regulations. Our capital requirements consist of maintenance capital expenditures and growth capital expenditures. Examples of maintenance capital expenditures are those made to replace partially or fully depreciated assets, to maintain the existing operating capacity of our assets and to extend their useful lives, or other capital expenditures that are incurred in maintaining existing system volumes and related cash flows. In contrast, growth capital expenditures are those incurred for capital improvements that we expect will increase our operating capacity to increase volumes gathered, processed, transported or fractionated, decrease operating expenses within our facilities or increase operating income over the long term. Examples of growth capital expenditures include the acquisition of equipment or the construction costs associated with new well connections, and the development of additional pipeline, processing or storage capacity. In general, growth capital includes costs that are expected to generate additional or new cash flow for MPLX.
Our capital expenditures are shown in the table below:
Six Months Ended June 30,
(In millions) 2020 2019
Capital expenditures:
Maintenance $ 67 $ 99
Maintenance reimbursements (20 ) (16 )
Growth 469 961
Growth reimbursements - (12 )
Total capital expenditures 516 1,032
Less: (Decrease)/increase in capital accruals (172 ) (77 )
Asset retirement expenditures - 1
Additions to property, plant and equipment, net of reimbursements(1)
688 1,108
Investments in unconsolidated affiliates 222
323
Acquisitions - (6 ) Total capital expenditures and acquisitions 910
1,425
Less: Maintenance capital expenditures (including reimbursements) 47 83 Acquisitions - (6 ) Total growth capital expenditures(2) $ 863
(1) This amount is represented in the Consolidated Statements of Cash Flows as
Additions to property, plant and equipment after excluding growth and
maintenance reimbursements. Reimbursements are shown as Contributions from
MPC within the Financing activities section of the Consolidated Statements of
Cash Flows.
(2) Amount excludes contributions from noncontrolling interests of zero and
million for the six months ended
reflected in the financing section of our statement of cash flows. Also
excludes a
joint venture in the first quarter of 2020 and a
capital from our Whistler Pipeline joint venture in the second quarter of
2020. These are reflected in the investing section of our statement of cash
flows for the six months ended June 30, 2020 .
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Contractual Cash Obligations
As ofJune 30, 2020 , our contractual cash obligations included long-term debt, finance and operating lease obligations, purchase obligations for services and to acquire property, plant and equipment, and other liabilities. During the six months endedJune 30, 2020 , our third-party, long-term debt obligations increased by$825 million and was primarily used to repay our MPC Loan Agreement. There were no other material changes to these obligations outside the ordinary course of business sinceDecember 31, 2019 .
Off-Balance Sheet Arrangements
Off-balance sheet arrangements comprise those arrangements that may potentially impact our liquidity, capital resources and results of operations, even though such arrangements are not recorded as liabilities underU.S. GAAP. Our off-balance sheet arrangements are limited to indemnities and guarantees that are described in Note 21. Although these arrangements serve a variety of our business purposes, we are not dependent on them to maintain our liquidity and capital resources, and we are not aware of any circumstances that are reasonably likely to cause the off-balance sheet arrangements to have a material adverse effect on our liquidity and capital resources.
TRANSACTIONS WITH RELATED PARTIES
At
Excluding revenues attributable to volumes shipped by MPC under joint tariffs with third parties that are treated as third-party revenues for accounting purposes, MPC accounted for 56 percent and 53 percent of our total revenues and other income for the second quarter of 2020 and 2019, respectively. We provide crude oil and product pipeline transportation services based on regulated tariff rates and storage services and inland marine transportation based on contracted rates.
Of our total costs and expenses, MPC accounted for 32 percent and 30 percent for the second quarter of 2020 and 2019, respectively. MPC performed certain services for us related to information technology, engineering, legal, accounting, treasury, human resources and other administrative services.
For further discussion of agreements and activity with MPC and related parties see Item 1. Business in our Annual Report on Form 10-K for the year endedDecember 31, 2019 and Note 5 of the Notes to Consolidated Financial Statements in this report.
ENVIRONMENTAL MATTERS AND COMPLIANCE COSTS
We have incurred and may continue to incur substantial capital, operating and maintenance, and remediation expenditures as a result of environmental laws and regulations. If these expenditures, as with all costs, are not ultimately reflected in the prices of our products and services, our operating results will be adversely affected. We believe that substantially all of our competitors must comply with similar environmental laws and regulations. However, the specific impact on each competitor may vary depending on a number of factors, including, but not limited to, the age and location of its operating facilities. As ofJune 30, 2020 , there have been no significant changes to our environmental matters and compliance costs since our Annual Report on Form 10-K for the year endedDecember 31, 2019 . CRITICAL ACCOUNTING ESTIMATES
As of
Impairment Assessments of Long-Lived Assets, Intangible Assets,Goodwill and Equity Method Investments Fair value calculated for the purpose of testing our long-lived assets, intangible assets, goodwill and equity method investments for impairment is estimated using the expected present value of future cash flows method and comparative market prices when appropriate. Significant judgment is involved in performing these fair value estimates since the results are based on forecasted assumptions. Significant assumptions include: • Future Operating Performance. Our estimates of future operating performance are based on our analysis of various supply and demand factors, which include, among other things, industry-wide capacity, our planned utilization rate, 59
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end-user demand, capital expenditures and economic conditions as well as commodity prices. Such estimates are consistent with those used in our planning and capital investment reviews.
• Future volumes. Our estimates of future throughput of crude oil, natural
gas, NGL and refined product volumes are based on internal forecasts and
depend, in part, on assumptions about our customers' drilling activity
which is inherently subjective and contingent upon a number of variable
factors (including future or expected pricing considerations), many of
which are difficult to forecast. Management considers these volume
forecasts and other factors when developing our forecasted cash flows.
• Discount rate commensurate with the risks involved. We apply a discount
rate to our cash flows based on a variety of factors, including market and
economic conditions, operational risk, regulatory risk and political risk.
This discount rate is also compared to recent observable market
transactions, if possible. A higher discount rate decreases the net
present value of cash flows.
• Future capital requirements. These are based on authorized spending and
internal forecasts.
Assumptions about the effects of COVID-19 and the macroeconomic environment are
inherently subjective and contingent upon the duration of the pandemic and its
impact on the macroeconomic environment, which is difficult to forecast. We base
our fair value estimates on projected financial information which we believe to
be reasonable. However, actual results may differ from these projections.
The need to test for impairment can be based on several indicators, including a
significant reduction in prices of or demand for commodities, a poor outlook for
profitability, a significant reduction in pipeline throughput volumes, a
significant reduction in natural gas or NGL volumes processed, other changes to
contracts or changes in the regulatory environment in which the asset or equity
method investment is located.
Long-lived assets used in operations are assessed for impairment whenever
changes in facts and circumstances indicate that the carrying value of the
assets may not be recoverable based on the expected undiscounted future cash
flow of an asset group. For purposes of impairment evaluation, long-lived assets
must be grouped at the lowest level for which independent cash flows can be
identified, which is at least at the segment level and in some cases for similar
assets in the same geographic region where cash flows can be separately
identified. If the sum of the undiscounted cash flows is less than the carrying
value of an asset group, fair value is calculated, and the carrying value is
written down if greater than the calculated fair value.
No impairment triggers were identified in the second quarter of 2020, however,
during the first quarter of 2020, we identified an impairment trigger relating
to asset groups within our Western G&P reporting unit as a result of significant
impacts to forecasted cash flows for these asset groups resulting from the first
quarter events and circumstances as discussed in Note 1 of the Notes to
Consolidated Financial Statements. The cash flows associated with these assets
were significantly impacted by volume declines reflecting decreased forecasted
producer customer production as a result of lower commodity prices. After
assessing each asset group within the Western G&P reporting unit for impairment,
only the East Texas G&P asset group resulted in the fair value of the underlying
assets being less than the carrying value. As a result, an impairment of $174
million of property, plant and equipment and $177 million of intangibles was
recorded to "Impairment expense" on the Consolidated Statements of Income for
the first quarter of 2020. Fair value of our PP&E was determined using a
combination of an income and cost approach. The income approach utilized
significant assumptions including management's best estimates of the expected
future cash flows and the estimated useful life of the asset group. The cost
approach utilized assumptions for the current replacement costs of similar
assets adjusted for estimated depreciation and deterioration of the existing
equipment and economic obsolescence. The fair value of the intangibles was
determined based on applying the multi-period excess earnings method, which is
an income approach. Key assumptions included management's best estimates of the
expected future cash flows from existing customers, customer attrition rates and
the discount rate. Fair value determinations require considerable judgment and
are sensitive to changes in underlying assumptions and factors. As a result,
there can be no assurance that the estimates and assumptions made for purposes
of our impairment analysis will prove to be an accurate prediction of the
future. The fair value measurements for the asset group fair values represent
Level 3 measurements.
Unlike long-lived assets, goodwill must be tested for impairment at least
annually, and between annual tests if an event occurs or circumstances change
that would more likely than not reduce the fair value of a reporting unit below
its carrying amount. Goodwill is tested for impairment at the reporting unit
level. A goodwill impairment loss is measured as the amount by which a reporting
unit's carrying value exceeds its fair value, without exceeding the recorded
amount of goodwill.
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The "Current Economic Environment" section describes the effects that the outbreak of COVID-19 and its development into a pandemic and the decline in commodity prices have had on our business. Due to these developments in the first quarter of 2020, we performed impairment assessments as discussed further below.
Prior to performing our goodwill impairment assessment as ofMarch 31, 2020 , MPLX had goodwill totaling approximately$9,536 million . As part of that assessment, MPLX recorded approximately$1,814 million of impairment expense in the first quarter of 2020 related to our Eastern G&P reporting unit within the G&P operating segment, which brought the amount of goodwill recorded within this reporting unit to zero. The impairment was primarily driven by updated guidance related to the slowing of drilling activity which has reduced production growth forecasts from our producer customers. For the remaining reporting units with goodwill, we determined that no significant adjustments to the carrying value of goodwill were necessary. The interim impairment assessment resulted in the fair value of the reporting units exceeding their carrying value by percentages ranging from approximately 8.5 percent to 270.0 percent. The reporting unit whose fair value exceeded its carrying amount by 8.5 percent, our Crude Gathering reporting unit, had goodwill totaling$1.1 billion atMarch 31, 2020 . The operations which make up this reporting unit were acquired through the merger with ANDX. MPC accounted for itsOctober 1, 2018 acquisition ofAndeavor (including acquiring control of ANDX), using the acquisition method of accounting, which requiredAndeavor assets and liabilities to be recorded by MPC at the acquisition date fair value. The Merger was closed onJuly 30, 2019 and has been treated as a common control transaction, which required the recognition of assets acquired and liabilities assumed using MPC's historical carrying value. As such, given the short amount of time from when fair value was established to the date of the impairment test, the amount by which the fair value exceeded the carrying value within this reporting unit is not unexpected. An increase of one percentage point to the discount rate used to estimate the fair value of this reporting unit would not have resulted in goodwill impairment as ofMarch 31, 2020 . No other reporting units had had fair values exceeding carrying values of less than 20 percent. There were no events or changes in circumstances noted in the second quarter of 2020 which would indicate it is more likely than not that the fair value of our reporting units with goodwill is less than their carrying amount. Significant assumptions used to estimate the reporting units' fair value included estimates of future cash flows and market information for comparable assets. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of the impairment tests will prove to be an accurate prediction of the future. See Note 12 of the Notes to Consolidated Financial Statements for additional information relating to goodwill. Equity method investments are assessed for impairment whenever factors indicate an other than temporary loss in value. Factors providing evidence of such a loss include the fair value of an investment that is less than its carrying value, absence of an ability to recover the carrying value or the investee's inability to generate income sufficient to justify our carrying value. During the first quarter of 2020, we assessed certain of our equity method investments for impairment as a result of a number of first quarter events and circumstances as discussed in Note 1 of the Notes to Consolidated Financial Statements. As a result, we recorded an other than temporary impairment for three joint ventures in which we have an interest. Impairment of these investments was$1,264 million , of which$1,251 million was related toMarkWest Utica EMG, L.L.C. and its investment inOhio Gathering Company, L.L.C. The fair value of the investments was determined based upon applying the discounted cash flow method, which is an income approach. The discounted cash flow fair value estimate is based on known or knowable information at the interim measurement date. The significant assumptions that were used to develop the estimate of the fair value under the discounted cash flow method include management's best estimates of the expected future cash flows, including prices and volumes, the weighted average cost of capital and the long-term growth rate. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As such, the fair value of these equity method investments represents a Level 3 measurement. As a result, there can be no assurance that the estimates and assumptions made for purposes of the impairment test will prove to be an accurate prediction of the future. The impairment was recorded through "Income from equity method investments." The impairments were largely due to a reduction in forecasted volumes gathered and processed by the systems operated by the joint ventures. AtJune 30, 2020 we had$4,065 million of equity method investments recorded on the Consolidated Balance Sheets. An estimate of the sensitivity to net income resulting from impairment calculations is not practicable, given the numerous assumptions (e.g., pricing, volumes and discount rates) that can materially affect our estimates. That is, unfavorable adjustments to some of the above listed assumptions may be offset by favorable adjustments in other assumptions. See Note 4 of the Notes to Consolidated Financial Statements for additional information relating to equity method investments. 61
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ACCOUNTING STANDARDS NOT YET ADOPTED
While new financial accounting pronouncements will be effective for our financial statements in the future, there are no standards that have not yet been adopted that are expected to have a material impact on our financial statements. Accounting standards are discussed in Note 2 of the Notes to Consolidated Financial Statements.
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