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 recent 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; and
• 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,
including the dropdowns completed by MPC, 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 "Item 1A. Risk Factors"
below, together with the risk factors described in our Annual Report on Form
10-K for the year ended December 31, 2019 . We undertake no obligation to update
any forward-looking statements except to the extent required by applicable law.
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 endedMarch 31, 2020 andMarch 31, 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: roo.jpg]]
(1) Q1 2020 includes impairment related to equity method investments of
approximately
(2) Q1 2020 includes impairment related to equity method investments of
approximately
and long-lived asset impairments of approximately
our G&P operating segment.
(3) Q1 2019 includes Adjusted EBITDA attributable to Predecessor and portion of
DCF adjustments attributable to Predecessor.
Other Highlights
• Recognized approximately
related to goodwill, equity method investments and long-lived assets
(including intangibles).
• MPC announced the unanimous decision of its board of directors to maintain
MPC's current midstream structure, with MPC remaining the general partner
of MPLX. This was a result of a comprehensive evaluation by a special
committee formed by MPC's board of directors, which included extensive
input from multiple external advisors and significant feedback from
investors.
• MPLX continues to focus on portfolio optimization, which could include
asset divestitures.
RECENT DEVELOPMENTS
• Announced plans to reduce 2020 capital spending to approximately
billion and expect to reduce forecasted annual operating expenses by
approximately
related to the BANGL project which is no longer being pursued as the
company works with others to optimize existing pipeline capacity while
continuing to meet producers' needs for flow assurance and future growth.
The reduction in operating expenses will be achieved through the deferral
of certain expense projects.
• Announced a first quarter distribution rate of
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CURRENT ECONOMIC ENVIRONMENT
The recent 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
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.
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COMPARABILITY OF OUR FINANCIAL RESULTS
Our acquisitions have impacted comparability of our financial results (see Note 3 of the Notes to Consolidated Financial Statements).
RESULTS OF OPERATIONS
The following tables and discussion are a summary of our results of operations for the three months endedMarch 31, 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 March 31, (In millions) 2020 2019 Variance
Total revenues and other income(1) $ 992
$ (1,243 ) Costs and expenses: Cost of revenues (excludes items below) 368 339 29 Purchased product costs 135 194 (59 ) Rental cost of sales 35 37 (2 ) Rental cost of sales - related parties 46 43 3 Purchases - related parties 276 278 (2 ) Depreciation and amortization 325 301 24 Impairment expense 2,165 - 2,165 General and administrative expenses 97 101 (4 ) Other taxes 31 30 1 Total costs and expenses 3,478 1,323 2,155 Income/(loss) from operations (2,486 ) 912 (3,398 ) Related party interest and other financial costs 3 1 2 Interest expense, net of amounts capitalized 211 214 (3 ) Other financial costs 16 9 7 Income/(loss) before income taxes (2,716 ) 688 (3,404 ) (Benefit)/provision for income taxes - (1 ) 1 Net income/(loss) (2,716 ) 689 (3,405 ) Less: Net income attributable to noncontrolling interests 8 6 2 Less: Net income attributable to Predecessor - 180 (180 ) Net income/(loss) attributable to MPLX LP (2,724 ) 503
(3,227 )
Adjusted EBITDA attributable toMPLX LP (excluding Predecessor results)(2) 1,294 930 364 Adjusted EBITDA attributable toMPLX LP (including Predecessor results)(3) N/A 1,263 N/A DCF attributable to GP and LP unitholders (including Predecessor results)(3)$ 1,047 $ 991
$ 56
(1) Includes impairment expense of approximately
equity method investments in 2020.
(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 March 31,
(In millions) 2020 2019 Variance
Reconciliation of Adjusted EBITDA
attributable to MPLX LP and DCF
attributable to GP and LP unitholders from
Net income:
Net income $ (2,716 ) $ 689 $ (3,405 )
Provision for income taxes - (1 ) 1
Amortization of deferred financing costs 14 7 7
Net interest and other financial costs 216 217 (1 )
Income from operations (2,486 ) 912 (3,398 )
Depreciation and amortization 325 301 24
Non-cash equity-based compensation 5 7 (2 )
Impairment expense 2,165 - 2,165
Loss (Income) from equity method
investments 1,184 (77 ) 1,261
Distributions/adjustments related to
equity method investments 124 122 2
Unrealized derivative (gains)/losses(1) (15 ) 4 (19 )
Acquisition costs - 1 (1 )
Other 1 - 1
Adjusted EBITDA 1,303 1,270 33
Adjusted EBITDA attributable to
noncontrolling interests (9 ) (7 ) (2 )
Adjusted EBITDA attributable to
Predecessor(2) - (333 ) 333
Adjusted EBITDA attributable to MPLX LP(3) 1,294 930 364
Deferred revenue impacts 23 9 14
Net interest and other financial costs (216 ) (217 ) 1
Maintenance capital expenditures (34 ) (37 ) 3
Maintenance capital expenditures
reimbursements 14 7 7
Equity method investment capital
expenditures paid out (7 ) (4 ) (3 )
Other 4 - 4
Portion of DCF adjustments attributable to
Predecessor(2) - 69 (69 )
DCF 1,078 757 321
Preferred unit distributions (31 ) (30 ) (1 )
DCF attributable to GP and LP unitholders 1,047 727 320
Adjusted EBITDA attributable to
Predecessor(2) - 333 (333 )
Portion of DCF adjustments attributable to
Predecessor(2) - (69 ) 69
DCF attributable to GP and LP unitholders
(including Predecessor results) $ 1,047 $ 991 $ 56
(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 $559 million and $371 million of Adjusted EBITDA
attributable to MPLX LP , respectively.
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Three Months Ended March 31,
(In millions) 2020 2019 Variance
Reconciliation of Adjusted EBITDA
attributable to MPLX LP and DCF
attributable to GP and LP unitholders from
Net cash provided by operating activities:
Net cash provided by operating activities $ 1,009 $ 853 $ 156
Changes in working capital items 112 196 (84 )
All other, net (30 ) (15 ) (15 )
Non-cash equity-based compensation 5 7 (2 )
Net gain/(loss) on disposal of assets - (1 ) 1
Net interest and other financial costs 216 217 (1 )
Current income taxes - 1 (1 )
Unrealized derivative (gains)/losses(1) (15 ) 4 (19 )
Acquisition costs - 1 (1 )
Other adjustments to equity method
investment distributions 5 7 (2 )
Other 1 - 1
Adjusted EBITDA 1,303 1,270 33
Adjusted EBITDA attributable to
noncontrolling interests (9 ) (7 ) (2 )
Adjusted EBITDA attributable to
Predecessor(2) - (333 ) 333
Adjusted EBITDA attributable to MPLX LP(3) 1,294 930 364
Deferred revenue impacts 23 9 14
Net interest and other financial costs (216 ) (217 ) 1
Maintenance capital expenditures (34 ) (37 ) 3
Maintenance capital expenditures
reimbursements 14 7 7
Equity method investment capital
expenditures paid out (7 ) (4 ) (3 )
Other 4 - 4
Portion of DCF adjustments attributable to
Predecessor(2) - 69 (69 )
DCF 1,078 757 321
Preferred unit distributions (31 ) (30 ) (1 )
DCF attributable to GP and LP unitholders 1,047 727 320
Adjusted EBITDA attributable to
Predecessor(2) - 333 (333 )
Portion of DCF adjustments attributable to
Predecessor(2) - (69 ) 69
DCF attributable to GP and LP unitholders
(including Predecessor results) $ 1,047 $ 991 $ 56
(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 $559 million and $371 million of Adjusted EBITDA
attributable to MPLX LP , respectively.
Three months ended
Total revenues and other income decreased$1,243 million in the first quarter 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 . The remaining increase of$21 million was primarily due to a$32 million increase in pipeline transportation volumes, prices and fees;$5 million from increased fees and shell capacity from Refining Logistics; a$13 million increase from additional marine vessels;$5 million from decreased expenses on the Explorer pipeline; and$38 million 41
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from higher fees as a result of higher volumes in the Marcellus, Southwest, Bakken and Rockies. These increases were partially offset by a decrease of$71 million due to lower prices, primarily in the Southwest, Southern Appalachia and Marcellus. Cost of Revenues increased$29 million in the first quarter of 2020 compared to the same period of 2019, primarily due to higher project-related costs, which include repairs, maintenance and operating cost, in the L&S segment as well as in the Marcellus region within the G&P segment. These were partially offset by lower repairs, maintenance and operating costs in the Southwest, Southern Appalachia and Rockies regions in the G&P segment and lower miscellaneous costs and expenses within the L&S segment. Purchased product costs decreased$59 million in the first quarter of 2020 compared to the same period of 2019. This was primarily due to lower prices of$46 million in the Southwest and Southern Appalachia, partially offset by higher volumes of$6 million in the Southwest. In addition, there was a decrease of$18 million in unrealized derivative gains from prior year. Depreciation and amortization expense increased$24 million in the first quarter of 2020 compared to the same period of 2019, primarily due to additions to in-service property, plant and equipment throughout 2019 and the first three months of 2020 as well as accelerated depreciation of certain gathering assets, partially offset by a decrease due to the classification of certain assets as a sales-type lease. Impairment expense increased$2,165 million in the first quarter 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. Net interest expense and other financial costs increased$6 million in the first quarter of 2020 compared to the same period of 2019. The increase is primarily related to costs associated with debt facilities that were entered into during the second half of 2019 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 months ended
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L&S Segment
[[Image Removed: lssegmentresults.jpg]](1) Includes adjusted EBITDA attributable to Predecessor.
Three Months Ended March 31,
(In millions) 2020 2019 Variance
Service revenue $ 1,004 $ 889 $ 115
Rental income 242 335 (93 )
Product related revenue 19 15 4
Income from equity method investments 50 45 5
Other income 51 12 39
Total segment revenues and other income 1,366 1,296 70
Cost of revenues 238 226 12
Purchases - related parties 199 190 9
Depreciation and amortization 138 126 12
General and administrative expenses 52 51 1
Other taxes 16 16 -
Segment income from operations 723 687 36
Depreciation and amortization 138 126 12
Income from equity method investments (50 ) (45 ) (5 )
Distributions/adjustments related to
equity method investments 57 54 3
Acquisition costs - 1 (1 )
Non-cash equity-based compensation 3 5 (2 )
Other 1 - 1
Adjusted EBITDA attributable to
Predecessor - (269 ) 269
Segment adjusted EBITDA(1) 872 559 313
Capital expenditures 184 198 (14 )Investments in unconsolidated affiliates $ 54 $ 7 $ 47
(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$115 million in the first quarter of 2020 compared to the same period of 2019. This was primarily due to a$55 million increase due to the classification of lease income between service revenue, rental income and other income based on the nature of the contract; a$32 million increase in pipeline transportation volumes, prices and fees;$5 million from increased fees and shell capacity from Refining Logistics; a$13 million increase from additional marine vessels; and$10 million from various immaterial items. 43
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Rental income decreased$93 million in the first quarter of 2020 compared to the same period of 2019, primarily due to a net decrease of$93 million due to the classification of lease income between service revenue, rental income and other income based on the nature of the contract. Income from equity method investments increased$5 million in the first quarter of 2020 compared to the same period of 2019, primarily due to lower expenses on the Explorer pipeline. Other Income increased$39 million in the first quarter of 2020 compared to the same period of 2019, primarily due to an increase of$38 million due to the classification of lease income between service revenue, rental income and other income based on the nature of the contract. Cost of Revenues increased$12 million in the first quarter of 2020 compared to the same period of 2019, primarily due to higher project-related costs partially offset by lower other miscellaneous expenses. Purchases - related parties increased$9 million in the first quarter of 2020 compared to the same period of 2019, primarily due to increased employee-related costs and other miscellaneous expenses from MPC partially offset by higher reimbursements from MPC for reimbursable projects. Depreciation and amortization increased$12 million in the first quarter of 2020 compared to the same period of 2019, primarily due to additions to in-service property, plant and equipment throughout 2019 and the first quarter of 2020 partially offset by a decrease due to the classification of certain assets as a sales-type lease. G&P Segment [[Image Removed: gpsegmentresults.jpg]]
(1) Includes impairment of equity method investments of
(2) Includes impairment of goodwill of$1,814 million , long-lived assets including intangibles of$351 million and equity method investments of$1,264 million .
(3) Includes adjusted EBITDA attributable to Predecessor.
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Three Months Ended March 31,
(In millions) 2020 2019 Variance
Service revenue $ 536 $ 528 $ 8
Rental income 88 89 (1 )
Product related revenue 222 276 (54 )
(Loss)/income from equity method
investments (1,234 ) 32 (1,266 )
Other income 14 14 -
Total segment revenues and other
(loss)/income (374 ) 939 (1,313 )
Cost of revenues 211 193 18
Purchased product costs 135 194 (59 )
Purchases - related parties 77 88 (11 )
Depreciation and amortization 187 175 12
Impairment expense 2,165 - 2,165
General and administrative expenses 45 50 (5 )
Other taxes 15 14 1
Segment (loss)/income from operations (3,209 ) 225 (3,434 )
Depreciation and amortization 187 175 12
Impairment expense 2,165 - 2,165
Loss/(income) from equity method
investments 1,234 (32 ) 1,266
Distributions/adjustments related to
equity method investments 67 68 (1 )
Unrealized derivative (gains)/losses(1) (15 ) 4 (19 )
Non-cash equity-based compensation 2 2 -
Adjusted EBITDA attributable to
Predecessor - (64 ) 64
Adjusted EBITDA attributable to
noncontrolling interests (9 ) (7 ) (2 )
Segment Adjusted EBITDA(2) 422 371 51
Capital expenditures 134 306 (172 )Investments in unconsolidated affiliates $ 37 $ 128 $ (91 )
(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) 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$8 million in the first quarter of 2020 compared to the same period of 2019. This was primarily due to higher fees from higher volumes in the Marcellus, Southwest and Bakken of$30 million , offset by lower volumes of$5 million in the Rockies as well as other miscellaneous decreases. Product related revenue decreased$54 million in the first quarter of 2020 compared to the same period of 2019. This was primarily due to lower prices in the Southwest, Southern Appalachia and Marcellus of approximately$71 million . This was partially offset by$13 million of volume increases in the Southwest, Marcellus, Bakken and Rockies as well as other miscellaneous increases. Income from equity method investments decreased$1,266 million in the first quarter 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 . Additionally, there was a decrease in various joint ventures due to lower volumes processed and lower NGL prices compared to the same period of 2019, offset by an increase in theSherwood Midstream LLC joint venture due to additional plants coming online during 2019. 45
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Cost of revenues increased$18 million in the first quarter 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$59 million in the first quarter of 2020 compared to the same period of 2019. This was primarily due to lower prices of$46 million in the Southwest and Southern Appalachia, partially offset by higher costs from higher volumes of$6 million in the Southwest. In addition, there was an increase of$18 million in unrealized derivative gains from prior year.
Purchases - related parties decreased
Depreciation and amortization increased$12 million in the first quarter of 2020 compared to the same period of 2019, with the majority of the increase being due to additions to in-service property, plant and equipment throughout 2019 and the first three months of 2020 as well as accelerated depreciation of certain gathering assets. Impairment expense increased$2,165 million in first quarter 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$174 million , respectively. The impairment of goodwill related to our Eastern G&P reporting unit while the intangible asset and property, plant and equipment impairments relate to certain assets in our Southwest region. The impairments were primarily driven by the slowing of drilling activity, which has reduced production growth forecasts from our producer customers.
General and Administrative expenses decreased
SEASONALITY
The volume of crude oil and refined products transported and stored utilizing
our assets is directly affected by the level of supply and demand for crude oil
and refined products in the markets served directly or indirectly by our assets.
Many effects of seasonality on the L&S segment's revenues will be mitigated
through the use of our fee-based transportation and storage services agreements
with MPC that include minimum volume commitments.
Our G&P segment can be affected by seasonal fluctuations in the demand for
natural gas and NGLs and the related fluctuations in commodity prices caused by
various factors including variations in weather patterns from year to year. We
are able to manage the seasonality impacts through the execution of our
marketing strategy and via our storage capabilities. Overall, our exposure to
the seasonality fluctuations is declining due to our growth in fee-based
business.
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OPERATING DATA(1)
[[Image Removed: lspipelinethroughput.jpg]]
Three Months Ended
March 31,
2020 2019
L&S
Pipeline throughput (mbpd)
Crude oil pipelines 3,210 3,105
Product pipelines 1,905 1,897
Total pipelines 5,115 5,002
Average tariff rates ($ per barrel)(2)
Crude oil pipelines $ 0.93 $ 0.96
Product pipelines 0.79 0.68
Total pipelines $ 0.88 $ 0.85
Terminal throughput (mbpd) 2,966 3,220
Marine Assets (number in operation)(3)
Barges 305 256
Towboats 23 23
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[[Image Removed: gathering.jpg]][[Image Removed: naturalgasprocessed.jpg]][[Image Removed: nglsfractionated.jpg]]
Three Months Ended
March 31, 2020
MPLX LP (4) MPLX LP Operated(5)
G&P
Gathering Throughput (MMcf/d)
Marcellus Operations 1,420 1,420
Utica Operations - 1,800
Southwest Operations 1,557 1,601
Bakken Operations 156 156
Rockies Operations 592 775
Total gathering throughput 3,725 5,752
Natural Gas Processed (MMcf/d)
Marcellus Operations 4,198 5,522
Utica Operations - 648
Southwest Operations 1,648 1,679
Southern Appalachian Operations 243 243
Bakken Operations 156 156
Rockies Operations 539 539
Total natural gas processed 6,784 8,787
C2 + NGLs Fractionated (mbpd)
Marcellus Operations(6) 456 456
Utica Operations(6) - 34
Southwest Operations 15 15
Southern Appalachian Operations(7) 12 12
Bakken Operations 31 31
Rockies Operations 5 5
Total C2 + NGLs fractionated(8) 519 553
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Table of Contents
Three Months Ended
March 31, 2019
MPLX LP(4) MPLX LP Operated(5)
G&P
Gathering Throughput (MMcf/d)
Marcellus Operations 1,282 1,282
Utica Operations - 2,109
Southwest Operations 1,581 1,581
Bakken Operations 152 152
Rockies Operations 642 827
Total gathering throughput 3,657 5,951
Natural Gas Processed (MMcf/d)
Marcellus Operations 4,152 5,148
Utica Operations - 817
Southwest Operations 1,599 1,599
Southern Appalachian Operations 235 235
Bakken Operations 152 152
Rockies Operations 570 570
Total natural gas processed 6,708 8,521
C2 + NGLs Fractionated (mbpd)
Marcellus Operations(6) 420 420
Utica Operations(6) - 44
Southwest Operations 17 17
Southern Appalachian Operations(7) 13 13
Bakken Operations 16 16
Rockies Operations 4 4
Total C2 + NGLs fractionated(8) 470 514
Three Months Ended
March 31,
2020 2019
Pricing Information
Natural Gas NYMEX HH ($ per MMBtu) $ 1.87 $ 2.87
C2 + NGL Pricing ($ per gallon)(9) $ 0.40 $ 0.62 (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 190 mbpd and 189 mbpd of total MPLX
Operated, fractionated products for the three months ended
2019, respectively. Purity ethane makes up approximately 183 mbpd and 176
mbpd of total
months ended
(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.
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LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Our cash and cash equivalents was$57 million atMarch 31, 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: Three Months Ended March 31, (In millions) 2020 2019 Net cash provided by (used in): Operating activities $ 1,009$ 853 Investing activities (362 ) (700 ) Financing activities (605 ) (116 ) Total $ 42$ 37 Net cash provided by operating activities increased$156 million in the first three months of 2020 compared to the first three months of 2019, primarily due to increased net income of$24 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$338 million in the first three months of 2020 compared to the first three months of 2019, primarily due to decreased spending related to the capital budget, a return of capital from our investment in Wink to Webster, decreased contributions to equity method investments as well as cash received from the sale of certain assets. Financing activities were a$605 million use of cash in the first three months of 2020 compared to a$116 million use of cash in the first three months of 2019. The use of cash for the first three months of 2020 was primarily due to distributions of$717 million to common unitholders, distributions of$20 million to Series A preferred unitholders, distributions of$21 million to Series B preferred unitholders, distributions of$9 million to noncontrolling interests, repayment of$575 million on the MPLX Credit Agreement, payments of$6 million related to financing leases, and repayment of$2,261 million on the MPC Loan Agreement. These uses of cash were offset by borrowings of$1,325 million on the revolving credit facility,$1,667 million on the MPC Loan Agreement, and$14 million of contributions from MPC.
Debt and Liquidity Overview
Our outstanding borrowings at
March 31, 2020 MPLX LP : Bank revolving credit facility 750 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 14 Total 20,864 Unamortized debt issuance costs (103 ) Unamortized discount/premium (290 ) Amounts due within one year (4 )
Total long-term debt due after one year
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-------------------------------------------------------------------------------- Our intention is to maintain an investment grade credit profile. As ofApril 23, 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 ofMarch 31, 2020 , we were in compliance with the covenants, including the financial covenant with a ratio of Consolidated Total Debt to Consolidated EBITDA of 3.8 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
March 31, 2020
Available
(In millions) Total Capacity Outstanding Borrowings Capacity
Bank revolving credit facility due 2024(1) $ 3,500 $ (750 ) $ 2,750
MPC Loan Agreement 1,500 - 1,500
Total liquidity $ 5,000 $ (750 ) 4,250
Cash and cash equivalents 57
Total liquidity $ 4,307 (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 throughMarch 31, 2020 : (In units) Balance atDecember 31, 2019 1,058,355,471 Unit-based compensation awards 151,878 Balance atMarch 31, 2020 1,058,507,349 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 three months endedMarch 31, 2020 , we issued no common units under our ATM program. As ofMarch 31, 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$1,111 million per year, based on the number of common units outstanding atMarch 31, 2020 . OnApril 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 onMay 15, 2020 to unitholders of record onMay 8, 2020 . This is consistent with the fourth quarter 2019 distribution of$0.6875 per unit and an increase of 4.6 percent over the first 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. MPLX made a cash distribution to holders of the Series B preferred unitholders inFebruary 2020 for approximately$21 million . The allocation of total quarterly cash distributions is as follows for the three months endedMarch 31, 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. Three Months Ended March 31, (In millions) 2020 2019 Distribution declared: Limited partner units - public $ 270$ 191 Limited partner units - MPC 458 332Total LP distribution declared 728 523 Series A preferred units 20 20 Series B preferred units 11 - Total distribution declared 759 543
Cash distributions declared per limited partner common unit
$ 0.6575 52
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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:
Three Months Ended March 31,
(In millions) 2020 2019
Capital expenditures:
Maintenance $ 34 $ 37
Maintenance reimbursements (14 ) (7 )
Growth 284 467
Growth reimbursements - (5 )
Total capital expenditures 304 492
Less: Increase (decrease) in capital accruals (61 ) (71 )
Additions to property, plant and equipment, net of reimbursements(1)
365 563
Investments in unconsolidated affiliates 91 135
Acquisitions - (1 )
Total capital expenditures and acquisitions 456 697
Less: Maintenance capital expenditures (including
reimbursements) 20 30
Acquisitions - (1 )
Total growth capital expenditures(2) $ 436 $ 668
(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 three months ended
reflected in the financing section of our statement of cash flows. Also
excludes a
venture which is reflected in the investing section of our statement of cash
flows for the three months ended
Contractual Cash Obligations
As ofMarch 31, 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 three months endedMarch 31, 2020 , our third-party, long-term debt obligations increased by$750 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. 53 --------------------------------------------------------------------------------
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, and excluding losses for impairment of equity method investments, MPC accounted for 55 percent and 53 percent of our total revenues and other income for the first 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, excluding impairment expense, MPC accounted for 29 percent and 29 percent for the first 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 of
CRITICAL ACCOUNTING ESTIMATES
As ofMarch 31, 2020 , there have been no significant changes to our critical accounting estimates since our Annual Report on Form 10-K for the year endedDecember 31, 2019 , except as noted below. 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, 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.
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-------------------------------------------------------------------------------- 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. 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. 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. The "Current Economic Environment" section describes the effects that the recent outbreak of COVID-19 and its development into a pandemic and the recent decline in commodity prices have had on our business. Due to these developments, 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 55 -------------------------------------------------------------------------------- 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. 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. AtMarch 31, 2020 we had$3,992 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. 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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