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.
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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, including any related government
policies and actions, 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 withrespect thereto, our ability to access capital markets, and the global
economy and financial markets generally;
• the ability of Marathon Petroleum Corporation ("MPC") 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
benefits of the
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;
• 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, including any related policies and actions, other
infectious disease outbreaks, natural hazards, extreme weather events, 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;
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• 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.
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 endedSeptember 30, 2020 andSeptember 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: q3consolidatedhighlights.jpg]]
(1) Q3 2019 includes Adjusted EBITDA attributable to Predecessor and portion of
DCF adjustments attributable to Predecessor.
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Table of Contents Other Highlights RECENT DEVELOPMENTS
• On
owned subsidiary of MPC, in exchange for the redemption of 18,582,088 MPLX
common units held by WRSW, valued at
• On
new senior notes consisting of
1.750 percent senior notes due
principal amount of 2.650 percent senior notes due
proceeds were used to repay the
under the MPLX Term Loan Agreement, to repay the
rate notes due
principal amount of 6.375 percent senior notes due
amounts outstanding under the MPLX Credit Agreement at the time and to
redeem the
notes due October 15, 2022 (these notes were redeemed on October 15,
2020 ).
• On
which replaces and simplifies several existing terminal services
agreements which were entered into by subsidiaries of
impact to MPLX.
• On November 2, 2020 , MPLX announced the board authorization of a unit
repurchase program for the repurchase of up to $1 billion of MPLX'soutstanding common units held by the public. MPLX may utilize various
methods to effect the repurchases, which could include open market
repurchases, negotiated block transactions, tender offers, accelerated
unit repurchases or open market solicitations for units, some of which may
be effected through Rule 10b5-1 plans. The timing and amount of
repurchases, if any, will depend upon several factors, including market
and business conditions, and repurchases may be initiated, suspended or
discontinued at any time. The repurchase authorization has no expiration
date.
• Announced a third 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
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.
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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 adjustments as deemed necessary. 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 measure 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).
RESULTS OF OPERATIONS
The following tables and discussion are a summary of our results of operations for the three and nine months endedSeptember 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. 43
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Three Months Ended September 30, Nine Months Ended September 30,
(In millions) 2020 2019 Variance 2020 2019 Variance
Total revenues and other
income(1) $ 2,247 $ 2,280 $ (33 ) $ 5,320 $ 6,725 $ (1,405 )
Costs and expenses:
Cost of revenues (excludes
items below) 323 407 (84 ) 1,006 1,099 (93 )
Purchased product costs 152 129 23 374 489 (115 )
Rental cost of sales 33 37 (4 ) 101 103 (2 )
Rental cost of sales -
related parties 32 45 (13 ) 119 124 (5 )
Purchases - related parties 297 303 (6 ) 853 894 (41 )
Depreciation and
amortization 346 302 44 992 916 76
Impairment expense - - - 2,165 - 2,165
General and administrative
expenses 96 102 (6 ) 289 293 (4 )
Restructuring expenses 36 - 36 36 - 36
Other taxes 33 29 4 94 84 10
Total costs and expenses 1,348 1,354 (6 ) 6,029 4,002 2,027
Income/(loss) from
operations 899 926 (27 ) (709 ) 2,723 (3,432 )
Related party interest and
other financial costs - 5 (5 ) 4 8 (4 )
Interest expense, net of
amounts capitalized 207 212 (5 ) 624 640 (16 )
Other financial costs 17 16 1 49 38 11
Income/(loss) before income
taxes 675 693 (18 ) (1,386 ) 2,037 (3,423 )
Provision for income taxes 1 4 (3 ) 1 2 (1 )
Net income/(loss) 674 689 (15 ) (1,387 ) 2,035 (3,422 )
Less: Net income
attributable to
noncontrolling interests 9 8 1 24 20 4
Less: Net income
attributable to Predecessor - 52 (52 ) - 401 (401 )
Net income/(loss)
attributable to MPLX LP 665 629 36 (1,411 ) 1,614 (3,025 )
Adjusted EBITDA attributable
to MPLX LP (excluding
Predecessor results)(2) 1,335 1,165 170 3,856 3,015 841
Adjusted EBITDA attributable
to MPLX LP (including
Predecessor results)(3) N/A 1,273 N/A N/A 3,785 N/A
DCF attributable to GP and
LP unitholders (including
Predecessor results)(3) $ 1,032 $ 997 $ 35 $ 3,075 $ 2,963 $ 112 (1) The nine 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 September 30, Nine Months Ended September 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/(loss) $ 674 $ 689 $ (15 ) $ (1,387 ) $ 2,035 $ (3,422 )
Provision for income taxes 1 4 (3 ) 1 2 (1 )
Amortization of deferred
financing costs 15 10 5 44 29 15
Gain on extinguishment of
debt (14 ) - (14 ) (14 ) - (14 )
Net interest and other
financial costs 223 223 - 647 657 (10 )
Income from operations 899 926 (27 ) (709 ) 2,723 (3,432 )
Depreciation and
amortization 346 302 44 992 916 76
Non-cash equity-based
compensation 4 5 (1 ) 12 17 (5 )
Impairment expense - - - 2,165 - 2,165
(Income)/loss from equity
method investments (83 ) (95 ) 12 1,012 (255 ) 1,267
Distributions/adjustments
related to equity method investments 130 145 (15 ) 369 399 (30 ) Unrealized derivative losses/(gains)(1) 10 (11 ) 21 1 (7 ) 8 Restructuring expenses 36 - 36 36 - 36 Acquisition costs - 9 (9 ) - 14 (14 ) Other 3 1 2 5 1 4 Adjusted EBITDA 1,345 1,282 63 3,883 3,808 75 Adjusted EBITDA attributable to noncontrolling interests (10 ) (9 ) (1 ) (27 ) (23 ) (4 ) Adjusted EBITDA attributable to Predecessor(2) - (108 ) 108 - (770 ) 770 Adjusted EBITDA attributable to MPLX LP(3) 1,335 1,165 170 3,856 3,015 841 Deferred revenue impacts 29 36 (7 ) 92 67 25 Net interest and other financial costs (223 ) (223 ) - (647 ) (657 ) 10 Maintenance capital expenditures (41 ) (75 ) 34 (108 ) (174 ) 66 Maintenance capital expenditures reimbursements 11 18 (7 ) 31 34 (3 ) Equity method investment capital expenditures paid out (5 ) (8 ) 3 (16 ) (16 ) - Restructuring expenses (36 ) - (36 ) (36 ) - (36 ) Other (3 ) 6 (9 ) - 16 (16 ) Portion of DCF adjustments attributable to Predecessor(2) - 27 (27 ) - 159 (159 ) DCF 1,067 946 121 3,172 2,444 728 Preferred unit distributions (35 ) (30 ) (5 ) (97 ) (92 ) (5 ) DCF attributable to GP and LP unitholders 1,032 916 116 3,075 2,352 723 Adjusted EBITDA attributable to Predecessor(2) - 108 (108 ) - 770 (770 ) Portion of DCF adjustments attributable to Predecessor(2) - (27 ) 27 - (159 ) 159 DCF attributable to GP and LP unitholders (including Predecessor results)$ 1,032 $ 997 $ 35
(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) 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
up
respectively. For the three months ended
segments made up
attributable to
the nine months ended
$1,895 million and$1,120 million of Adjusted EBITDA attributable toMPLX LP , respectively. Nine Months Ended September 30, (In millions) 2020 2019 Variance Reconciliation of Adjusted EBITDA attributable toMPLX LP and DCF attributable to GP and LP unitholders from Net cash provided by operating activities: Net cash provided by operating activities$ 3,336 $ 2,990 $ 346 Changes in working capital items (154 ) 134 (288 ) All other, net (6 ) (23 ) 17 Non-cash equity-based compensation 12 17 (5 ) Net (loss)/gain on disposal of assets (1 ) 3 (4 ) Gain on extinguishment of debt (14 ) - (14 ) Net interest and other financial costs 647 657 (10 ) Current income taxes 2 1 1 Asset retirement expenditures - 1 (1 ) Unrealized derivative (gains)/losses(1) 1 (7 ) 8 Restructuring Expenses 36 - 36 Acquisition costs - 14 (14 ) Other adjustments to equity method investment distributions 19 20 (1 ) Other 5 1 4 Adjusted EBITDA 3,883 3,808 75 Adjusted EBITDA attributable to noncontrolling interests (27 ) (23 ) (4 ) Adjusted EBITDA attributable to Predecessor(2) - (770 ) 770 Adjusted EBITDA attributable to MPLX LP(3) 3,856 3,015 841 Deferred revenue impacts 92 67 25 Net interest and other financial costs (647 ) (657 ) 10 Maintenance capital expenditures (108 ) (174 ) 66 Maintenance capital expenditures reimbursements 31 34 (3 ) Equity method investment capital expenditures paid out (16 ) (16 ) - Restructuring Expenses (36 ) - (36 ) Other - 16 (16 ) Portion of DCF adjustments attributable to Predecessor(2) - 159 (159 ) DCF 3,172 2,444 728 Preferred unit distributions (97 ) (92 ) (5 ) DCF attributable to GP and LP unitholders 3,075 2,352 723 Adjusted EBITDA attributable to Predecessor(2) - 770 (770 ) Portion of DCF adjustments attributable to Predecessor(2) - (159 ) 159 DCF attributable to GP and LP unitholders (including Predecessor results)$ 3,075 $
2,963 $ 112
(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 nine months ended
up
LP, respectively. For the nine months ended
G&P segments made up
attributable to MPLX LP , respectively.
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Three months ended
Total revenues and other income decreased$33 million in the third quarter of 2020 compared to the same period of 2019. This decrease was primarily due to lower G&P fees from lower volumes in the Southwest and lower prices in the Bakken and Rockies. This was partially offset by higher G&P fees from higher volumes in the Rockies and higher prices in the Southwest, Marcellus and Southern Appalachia. There were also decreases due to the Wholesale Exchange and lower L&S pipeline, terminal and storage volumes, including decreased throughputs on our Explorer and Bakken pipeline equity method investments. These decreases were partially offset by favorable L&S rate impacts, increased volume deficiency payments and favorable impacts from increased marine equipment. Cost of Revenues decreased$84 million in the third quarter of 2020 compared to the same period of 2019. This was primarily due to lower operating costs due to lower throughput, lower project-related spend, the Wholesale Exchange as well as other miscellaneous decreases. Purchased product costs increased$23 million in the third quarter of 2020 compared to the same period of 2019. This was primarily due to an increase of$20 million related to unrealized derivative gains in the prior year compared to unrealized derivative losses in the current year and higher prices of$21 million in the Southwest, partially offset by lower volumes of$21 million in the Southwest. Rental cost of sales - related parties decreased$13 million in the third quarter of 2020 compared to the same period of 2019. This was primarily due to lower operating costs due to reduced throughput as well as decreased project spend from overall cost reduction initiatives. Purchases - related parties decreased$6 million in the third quarter of 2020 compared to the same period of 2019. This was primarily due to aligning various expenses as a result of the ANDX acquisition as well as the Wholesale Exchange. Depreciation and amortization expense increased$44 million in the third quarter of 2020 compared to the same period of 2019. This was primarily due to write-offs of assets under construction of$27 million related to idled MPC refineries as well as property, plant and equipment placed in service in the fourth quarter of 2019 and the first nine months of 2020. General and administrative expenses decreased$6 million in the third quarter of 2020 compared to the same period of 2019. This was primarily due to decreased employee costs from MPC as well as acquisition costs incurred in 2019.
Restructuring expenses increased
Net interest expense and other financial costs decreased$9 million in the third quarter of 2020 compared to the same period of 2019. This was primarily due to decreased interest on variable rate debt as a result of lower interest rates during the quarter, as well as from the repayment of debt with higher interest rates and the issuance of new senior notes at lower interest rates.
Nine months ended
Total revenues and other income decreased$1,405 million in the first nine months of 2020 compared to the same period of 2019. This was primarily 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 inMarkWest 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 fees from lower volumes in the Southwest and Rockies, and lower prices in all of the G&P regions partially offset by increased volumes in the Marcellus. 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 which were offset by favorable L&S rate impacts, increased volume deficiency payments and favorable impacts from increased marine equipment. Cost of Revenues decreased$93 million in the first nine 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, as well as from the Wholesale Exchange. 47
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Purchased product costs decreased$115 million in the first nine months of 2020 compared to the same period of 2019. This was primarily due to lower prices of$73 million in the Southwest and Southern Appalachia and$52 million from lower volumes in the Southwest. This was offset by an increase of$8 million due to unrealized derivative gains in the prior year compared to unrealized derivative losses in the current year. Purchases - related parties decreased$41 million in the first nine months of 2020 compared to the same period of 2019. This was primarily due to aligning various expenses as a result of the ANDX acquisition, lower product purchases from MPC attributable to the Wholesale Exchange, lower project spend and decreased other miscellaneous costs from MPC. Depreciation and amortization expense increased$76 million in the first nine months of 2020 compared to the same period of 2019. This was primarily due to property, plant and equipment placed in service in the fourth quarter of 2019 and the first nine months of 2020 as well as write-offs of assets under construction of$27 million related to idled MPC refineries. Impairment expense increased$2,165 million in the first nine 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. Restructuring expenses increased$36 million in the first nine months of 2020 compared to the same period of 2019. This was due to cost cutting measures employed by MPC during the third quarter of 2020 which resulted in restructuring charges, some of which were allocated to MPLX based on impacted employees. Other taxes increased$10 million in the first nine months of 2020 compared to the same period of 2019 primarily due to refunds and credits related to prior periods. Net interest expense and other financial costs decreased$9 million in the first nine months of 2020 compared to the same period of 2019. This was primarily due to decreased interest on variable rate debt as a result of lower interest rates during the year, as well as from the repayment of debt with higher interest rates and the issuance of new senior notes at lower interest rates.
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) 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 nine months endedSeptember 30, 2020 and 2019. Prior period financial information has been retrospectively adjusted for common control transactions. 48
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L&S Segment
[[Image Removed: q3lssegmenthighlights.jpg]](1) Includes adjusted EBITDA attributable to Predecessor.
Three Months Ended September 30, Nine Months Ended September 30,
(In millions) 2020 2019 Variance 2020 2019 Variance
Service revenue $ 989 $ 976 $ 13 $ 2,924 $ 2,787 $ 137
Rental income 249 304 (55 ) 737 935 (198 )
Product related revenue 9 22 (13 ) 49 57 (8 )
Income from equity method
investments 36 60 (24 ) 126 159 (33 )
Other income 51 17 34 154 45 109
Total segment revenues and
other income 1,334 1,379 (45 ) 3,990 3,983 7
Cost of revenues 173 262 (89 ) 601 707 (106 )
Purchases - related parties 219 216 3 629 633 (4 )
Depreciation and
amortization 164 113 51 440 373 67
General and administrative
expenses 55 59 (4 ) 159 152 7
Restructuring expenses 27 - 27 27 - 27
Other taxes 19 16 3 53 43 10
Segment income from
operations 677 713 (36 ) 2,081 2,075 6
Depreciation and
amortization 164 113 51 440 373 67
Income from equity method
investments (36 ) (60 ) 24 (126 ) (159 ) 33
Distributions/adjustments
related to equity method investments 55 70 (15 ) 169 184 (15 ) Restructuring expenses 27 - 27 27 - 27 Acquisition costs - 9 (9 ) - 14 (14 ) Non-cash equity-based compensation 3 3 - 8 10 (2 ) Other 3 1 2 5 1 4 Adjusted EBITDA attributable to Predecessor - (83 ) 83 - (603 ) 603 Segment adjusted EBITDA(1) 893 766 127 2,604 1,895 709 Capital expenditures 118 272 (154 ) 410 700 (290 )
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$13 million in the third quarter of 2020 compared to the same period of 2019. This was primarily due to a$21 million increase due to the reclassification of lease income between service revenue, rental income and other income based on modifications to lease contracts, a$10 million increase from additional marine equipment, an increase in 49
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volume deficiency payments, favorable price impacts and other miscellaneous
items. These increases were partially offset by reduced pipeline and storage
volumes and an
Rental income decreased$55 million in the third quarter of 2020 compared to the same period of 2019. This was primarily due to a decrease of$55 million due to the reclassification of lease income between service revenue, rental income and other income based on modifications to lease contracts.
Product related revenue decreased
Income from equity method investments decreased$24 million in the third quarter of 2020 compared to the same period of 2019. This was primarily due to decreased throughput on the Explorer and Bakken pipelines during 2020. Other income increased$34 million in the third quarter of 2020 compared to the same period of 2019. This was primarily 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$89 million in the third quarter of 2020 compared to the same period of 2019. This was primarily due to lower operating costs due to lower throughput, lower project-related spend, the Wholesale Exchange as well as other miscellaneous expense decreases. Depreciation and amortization increased$51 million in the third quarter of 2020 compared to the same period of 2019. This was primarily due to write-offs of assets under construction of$27 million related to idled MPC refineries as well as property, plant and equipment placed in service in the fourth quarter of 2019 and the first nine months of 2020.
Restructuring expenses increased
Nine months ended
Service revenue increased$137 million in the first nine months of 2020 compared to the same period of 2019. This was primarily due to a$104 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$35 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 and an$8 million decrease due to the Wholesale Exchange. Rental income decreased$198 million in the first nine months of 2020 compared to the same period of 2019. This was primarily due to a decrease of$214 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 increased terminal storage revenue as well as other miscellaneous increases. Product related revenue decreased$8 million in the first nine months of 2020 compared to the same period of 2019. This was primarily due to the Wholesale Exchange. Income from equity method investments decreased$33 million in the first nine months of 2020 compared to the same period of 2019. This was primarily due to decreased throughput on the Explorer and Bakken pipelines during 2020. Other income increased$109 million in the first nine months of 2020 compared to the same period of 2019. This was primarily 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$106 million in the first nine months of 2020 compared to the same period of 2019. This was primarily due to lower operating costs due to lower throughput, lower project-related spend, a decrease of$7 million from the Wholesale Exchange as well as other miscellaneous expense decreases. Depreciation and amortization increased$67 million in the first nine months of 2020 compared to the same period of 2019. This was primarily due to property, plant and equipment placed in service in the fourth quarter of 2019 and the first nine months of 2020 as well as write-offs of assets under construction of$27 million related to idled MPC refineries. 50
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General and administrative expenses increased
Restructuring expenses increased$27 million in the first nine months of 2020 compared to the same period of 2019. This was due to cost cutting measures employed by MPC during the third quarter of 2020 which resulted in restructuring charges, some of which were allocated to MPLX based on impacted employees. Other taxes increased$10 million in the first nine months of 2020 compared to the same period of 2019. This was primarily due to refunds and credits related to prior periods. 51
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G&P Segment
[[Image Removed: q3gpsegmenthighlights.jpg]](1) Includes adjusted EBITDA attributable to Predecessor.
Three Months Ended September 30, Nine Months Ended September 30,
(In millions) 2020 2019 Variance 2020 2019 Variance
Service revenue $ 524 $ 555 $ (31 ) $ 1,549 $ 1,627 $ (78 )
Rental income 94 88 6 271 260 11
Product related revenue 234 207 27 607 714 (107 )
Income/(loss) from equity
method investments 47 35 12 (1,138 ) 96 (1,234 )
Other income 14 16 (2 ) 41 45 (4 )
Total segment revenues and
other income 913 901 12 1,330 2,742 (1,412 )
Cost of revenues 215 227 (12 ) 625 619 6
Purchased product costs 152 129 23 374 489 (115 )
Purchases - related parties 78 87 (9 ) 224 261 (37 )
Depreciation and
amortization 182 189 (7 ) 552 543 9
Impairment expense - - - 2,165 - 2,165
General and administrative
expenses 41 43 (2 ) 130 141 (11 )
Restructuring expenses 9 - 9 9 - 9
Other taxes 14 13 1 41 41 -
Segment income/(loss) from
operations 222 213 9 (2,790 ) 648 (3,438 )
Depreciation and
amortization 182 189 (7 ) 552 543 9
Impairment expense - - - 2,165 - 2,165
(Income)/loss from equity
method investments (47 ) (35 ) (12 ) 1,138 (96 ) 1,234
Distributions/adjustments
related to equity method investments 75 75 - 200 215 (15 ) Restructuring expenses 9 - 9 9 - 9 Unrealized derivative losses/(gains)(1) 10 (11 ) 21 1 (7 ) 8 Non-cash equity-based compensation 1 2 (1 ) 4 7 (3 ) Adjusted EBITDA attributable to Predecessor - (25 ) 25 - (167 ) 167 Adjusted EBITDA attributable to noncontrolling interests (10 ) (9 ) (1 ) (27 ) (23 ) (4 ) Segment Adjusted EBITDA(2) 442 399 43 1,252 1,120 132 Capital expenditures 131 321 (190 ) 375 953 (578 )
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$31 million in the third quarter of 2020 compared to the same period of 2019. This was primarily due to lower fees from lower volumes in the Southwest and Rockies of$22 million , a decrease from lower prices in the Bakken and Rockies of$6 million as well as other miscellaneous decreases. Rental income increased$6 million in the third quarter of 2020 compared to the same period of 2019. This was primarily due to higher fees related to gathering contracts in the Marcellus. Product related revenue increased$27 million in the third quarter of 2020 compared to the same period of 2019. This was primarily due to higher prices in the Southwest, Marcellus and Southern Appalachia of approximately$23 million and higher volumes in the Rockies of$21 million , partially offset by and lower volumes in the Southwest of$15 million and lower prices in the Rockies and Bakken of$11 million , as well as other miscellaneous increases. Income from equity method investments increased$12 million in the third 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.
Cost of revenues decreased
Purchased product costs increased$23 million in the third quarter of 2020 compared to the same period of 2019. This was primarily due to an increase of$20 million related to unrealized derivative gains in the prior year compared to unrealized derivative losses in the current year and higher prices of$21 million in the Southwest, partially offset by lower volumes of$21 million in the Southwest. Purchases - related parties decreased$9 million in the third quarter of 2020 compared to the same period of 2019. This was primarily due to aligning various expenses as a result of the ANDX acquisition. Depreciation and amortization decreased$7 million in the third quarter of 2020 compared to the same period of 2019. This was primarily due to the impairment of intangible assets and property, plant and equipment during the first quarter of 2020 which has resulted in less depreciation expense in the current period when compared to prior periods.
Restructuring expenses increased
Nine months ended
Service revenue decreased
Rental income increased
Product related revenue decreased$107 million in the first nine 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$154 million and lower volumes of$42 million in the Southwest. This was partially offset by$42 million of volume increases in the Marcellus, 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$1,234 million in the first nine 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 inMarkWest 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 53
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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$6 million in the first nine 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 offset by lower repairs, maintenance and operating costs in the Southwest, Southern Appalachia and Marcellus. Purchased product costs decreased$115 million in the first nine months of 2020 compared to the same period of 2019. This was primarily due to lower prices of$73 million in the Southwest and Southern Appalachia and$52 million from lower volumes in the Southwest. This was offset by an increase of$8 million due to unrealized derivative gains in the prior year compared to unrealized derivative losses in the current year.
Purchases - related parties decreased
Depreciation and amortization increased$9 million in the first nine months of 2020 compared to the same period of 2019 primarily due to property, plant and equipment placed in service in the fourth quarter of 2019 and the first nine months of 2020 partially offset by the impairment of intangible assets and property, plant and equipment during the first quarter of 2020 which has resulted in less depreciation expense in the current period when compared to prior periods. Impairment expense increased$2,165 million in the first nine 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
Restructuring expenses increased$9 million in the first nine months of 2020 compared to the same period of 2019. This was due to cost cutting measures employed by MPC during the third quarter of 2020 which resulted in restructuring charges, some of which were allocated to MPLX based on impacted employees.
SEASONALITY
The volume of crude oil and refined products transported and stored utilizing
our assets is directly affected by the level of supply and demand for crude oil
and refined products in the markets served directly or indirectly by our assets.
Many effects of seasonality on the L&S segment's revenues are mitigated through
the use of our fee-based transportation and storage services agreements with MPC
that include minimum volume commitments.
Our G&P segment can be affected by seasonal fluctuations in the demand for
natural gas and NGLs and the related fluctuations in commodity prices caused by
various factors including variations in weather patterns from year to year. We
are able to manage the seasonality impacts through the execution of our
marketing strategy and via our storage capabilities. Overall, our exposure to
seasonality fluctuations is minimal.
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OPERATING DATA(1)
[[Image Removed: q3lspipelinethroughput.jpg]]
Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
L&S
Pipeline throughput (mbpd)
Crude oil pipelines 3,077 3,367 3,007 3,240
Product pipelines 1,613 1,859 1,701 1,875
Total pipelines 4,690 5,226 4,708 5,115
Average tariff rates ($ per
barrel)(2)
Crude oil pipelines $ 0.96 $ 0.97 $ 0.96 $ 0.94
Product pipelines 0.85 0.77 0.82 0.73
Total pipelines $ 0.93 $ 0.90 $ 0.91 $ 0.86
Terminal throughput (mbpd) 2,701 3,292 2,696 3,267
Marine Assets (number in
operation)(3)
Barges 301 264 301 264
Towboats 23 23 23 23
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[[Image Removed: q3gpgatheringthroughput.jpg]][[Image Removed: q3gpprocessinghtroughput.jpg]][[Image Removed: q3gpfractionationthroughput.jpg]]
Three Months Ended Three Months Ended
September 30, 2020 September 30, 2019
MPLX LP MPLX LP
MPLX LP(4) Operated(5) MPLX LP(4) Operated(5)
G&P
Gathering Throughput (MMcf/d)
Marcellus Operations 1,312 1,312 1,271 1,271
Utica Operations - 1,816 - 2,381
Southwest Operations 1,413 1,479 1,653 1,653
Bakken Operations 130 130 149 149
Rockies Operations 481 659 627 827
Total gathering throughput 3,336 5,396 3,700 6,281
Natural Gas Processed (MMcf/d)
Marcellus Operations 4,222 5,706 4,264 5,300
Utica Operations - 530 - 866
Southwest Operations 1,377 1,439 1,667 1,667
Southern Appalachian Operations 227 227 254 254
Bakken Operations 129 129 149 149
Rockies Operations 481 481 568 568
Total natural gas processed 6,436 8,512 6,902 8,804
C2 + NGLs Fractionated (mbpd)
Marcellus Operations(6) 477 477 433 433
Utica Operations(6) - 30 - 49
Southwest Operations 21 21 19 19
Southern Appalachian Operations(7) 11 11 13 13
Bakken Operations 25 25 29 29
Rockies Operations 3 3 4 4
Total C2 + NGLs fractionated(8) 537 567 498 547
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Nine Months Ended Nine Months Ended
September 30, 2020 September 30, 2019
MPLX LP MPLX LP
MPLX LP(4) Operated(5) MPLX LP(4) Operated(5)
G&P
Gathering Throughput (MMcf/d)
Marcellus Operations 1,372 1,372 1,273 1,273
Utica Operations - 1,840 - 2,186
Southwest Operations 1,445 1,491 1,618 1,618
Bakken Operations 137 137 149 149
Rockies Operations 523 706 639 835
Total gathering throughput 3,477 5,546 3,679 6,061
Natural Gas Processed (MMcf/d)
Marcellus Operations 4,177 5,582 4,211 5,218
Utica Operations - 587 - 835
Southwest Operations 1,479 1,543 1,608 1,608
Southern Appalachian Operations 231 231 244 244
Bakken Operations 137 137 149 149
Rockies Operations 512 512 575 575
Total natural gas processed 6,536 8,592 6,787 8,629
C2 + NGLs Fractionated (mbpd)
Marcellus Operations(6) 466 466 431 431
Utica Operations(6) - 32 - 45
Southwest Operations 16 16 13 13
Southern Appalachian Operations(7) 12 12 12 12
Bakken Operations 25 25 22 22
Rockies Operations 4 4 4 4
Total C2 + NGLs fractionated(8) 523 555 482 527
Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Pricing Information
Natural Gas NYMEX HH ($ per MMBtu) $ 2.13 $ 2.33 $ 1.92 $ 2.57
C2 + NGL Pricing ($ per gallon)(9) $ 0.45 $ 0.44 $
0.40
(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 182 mbpd of total MPLX
Operated, fractionated products for the three months ended
and 2019, respectively, and approximately 192 mbpd and 189 mbpd of total
fractionated products for the nine months ended
respectively. Purity ethane makes up approximately 188 mbpd and 172 mbpd of
total
mbpd of total fractionated products for the nine months ended
2020 and 2019, respectively.
(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 were$28 million atSeptember 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: Nine Months Ended September 30, (In millions) 2020 2019 Net cash provided by (used in): Operating activities $ 3,336 $ 2,990 Investing activities (1,060 ) (2,189 ) Financing activities (2,263 ) (845 ) Total $ 13 $ (44 ) Net cash provided by operating activities increased$346 million in the first nine months of 2020 compared to the first nine months of 2019, primarily due net income adjusted for non-cash items. Net cash used in investing activities decreased$1,129 million in the first nine months of 2020 compared to the first nine 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$2,263 million use of cash in the first nine months of 2020 compared to an$845 million use of cash in the first nine months of 2019. The primary reason for the increase in the use of cash was due to lower net borrowings in the current year for third party obligations as well as net repayments on the MPC Loan Agreement in the current year compared to net borrowing in the prior year.
Debt and Liquidity Overview
OnAugust 18, 2020 , MPLX issued$3 billion aggregate principal amount of new senior notes consisting of$1.5 billion aggregate principal amount of 1.750 percent senior notes dueMarch 2026 and$1.5 billion aggregate principal amount of 2.650 percent senior notes dueAugust 2030 . The net proceeds were used to repay the$1.0 billion of outstanding borrowings under the MPLX Term Loan Agreement, to repay the$1.0 billion floating rate notes dueSeptember 2021 , to redeem all of the$450 million aggregate principal amount of 6.375 percent senior notes dueMay 2024 , to reduce amounts outstanding under the MPLX Credit Agreement at the time and to redeem the$300 million aggregate principal amount of 6.250 percent senior notes dueOctober 15, 2022 (these notes were redeemed onOctober 15, 2020 ). 58
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Our outstanding borrowings at
September 30, 2020 December 31, 2019
MPLX LP :
Bank revolving credit facility $ 95 $ -
Term loan facility - 1,000
Floating rate senior notes 1,000 2,000
Fixed rate senior notes 19,506 16,887
Consolidated subsidiaries:
MarkWest 23 23
ANDX 121 190
Financing lease obligations 12 19
Total 20,757 20,119
Unamortized debt issuance costs (118 ) (106 )
Unamortized discount/premium (290 ) (300 )
Amounts due within one year (307 ) (9 )
Total long-term debt due after one year $ 20,042 $ 19,704
Our intention is to maintain an investment grade credit profile. As ofSeptember 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 ofSeptember 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 may limit our ability to obtain future financing, including refinancing existing indebtedness. 59
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Our liquidity totaled
September 30, 2020
Available
(In millions) Total Capacity Outstanding Borrowings Capacity
Bank revolving credit facility due 2024(1) $ 3,500 $ (95 ) $ 3,405
MPC Loan Agreement 1,500 - 1,500
Total liquidity $ 5,000 $ (95 ) 4,905
Cash and cash equivalents 28
Total liquidity $ 4,933 (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.
Equity and Preferred Units Overview
OnJuly 31, 2020 , MPLX completed the exchange ofWestern Refining Wholesale, LLC toWestern Refining Southwest, Inc. ("WRSW"), a wholly owned subsidiary of MPC, in exchange for the redemption of 18,582,088 MPLX common units held by WRSW, valued at$340 million . Common units The table below summarizes the changes in the number of units outstanding throughSeptember 30, 2020 : (In units) Balance atDecember 31, 2019 1,058,355,471 Unit-based compensation awards 395,091
Units redeemed in Wholesale Exchange (18,582,088 )
Balance at
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 nine months endedSeptember 30, 2020 , we issued no common units under our ATM program. As ofSeptember 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$273 million per quarter, or$1,092 million per year, based on the number of common units outstanding atSeptember 30, 2020 . OnOctober 27, 2020 , we announced the board of directors of our general partner had declared a distribution of$0.6875 per unit that will be paid onNovember 13, 2020 to unitholders of record onNovember 6, 2020 . This is consistent with the second quarter 2020 distribution of$0.6875 per unit and an increase of 1.5 percent over the third 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. 60
-------------------------------------------------------------------------------- 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 was 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. Distributions earned by TexNew Mex units during the fourth quarter of 2019 and during the six months endedJune 30, 2020 were immaterial. Distributions of$5 million were earned by TexNew Mex units during the three months endedSeptember 30, 2020 . The allocation of total quarterly cash distributions is as follows for the three and nine months endedSeptember 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. Three Months Ended September 30, Nine Months Ended September 30, (In millions, except per unit data) 2020 2019 2020 2019 Distribution declared: Limited partner units - public $ 270$ 266 $ 810$ 718 Limited partner units - MPC 445 438 1,348 1,201Total LP distribution declared 715 704 2,158 1,919 Series A preferred units 20 20 61 61 Series B preferred units 10 10 31 31 Total distribution declared 745 734 2,250 2,011 Cash distributions declared per limited partner common unit $ 0.6875$ 0.6775 $ 2.0625$ 2.0025 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. 61 --------------------------------------------------------------------------------
Our capital expenditures are shown in the table below:
Nine Months Ended September 30,
(In millions) 2020 2019
Capital expenditures:
Maintenance $ 108 $ 174
Maintenance reimbursements (31 ) (34 )
Growth 677 1,479
Growth reimbursements (2 ) (17 )
Total capital expenditures 752 1,602
Less: (Decrease)/increase in capital accruals (197 ) (67 )
Asset retirement expenditures - 1
Additions to property, plant and equipment, net of reimbursements(1)
949 1,668
Investments in unconsolidated affiliates 244 494
Acquisitions - (6 )
Total capital expenditures and acquisitions 1,193 2,156
Less: Maintenance capital expenditures (including
reimbursements) 77 140
Acquisitions - (6 )
Total growth capital expenditures(2) $ 1,116 $ 2,022
(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 nine months ended
as reflected in the financing section of our statement of cash flows. Also
excludes a
joint venture in the first quarter of 2020, a
from our Whistler Pipeline joint venture in the second quarter of 2020 and a
quarter of 2020. These are reflected in the investing section of our
statement of cash flows for the nine months ended September 30, 2020 .
Contractual Cash Obligations
As ofSeptember 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 nine months endedSeptember 30, 2020 , our third-party long-term debt obligations increased by$645 million while obligations on our MPC Loan Agreement decreased by$594 million . In connection with the Wholesale Exchange, future purchase obligations decreased by approximately$7.2 billion . These commitments included fuel costs associated with the wholesale product supply agreement with MPC. 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 55 percent and 54 percent of our total revenues and
other income for the third 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.
62
-------------------------------------------------------------------------------- Of our total costs and expenses, MPC accounted for 31 percent and 30 percent for the third 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 ofSeptember 30, 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.
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.
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-------------------------------------------------------------------------------- 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 or third quarters 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 had a carrying value in excess of the fair value of its underlying assets. 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. Additionally, in order to strengthen the competitive position of MPC's assets and in response to continued decreased demand for their products, onAugust 3, 2020 , MPC announced their decision to indefinitely idle the Gallup and Martinez refineries and plans to evaluate possibilities to strategically reposition theMartinez refinery , including the potential conversion of the refinery into a renewable diesel facility. While no impairment was identified as a result of this announcement for MPLX, we will continue to monitor for both impairment and potential changes in useful lives of assets related to these refineries. 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 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 (through which it acquired 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 64 -------------------------------------------------------------------------------- or third quarters 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. AtSeptember 30, 2020 we had$4,081 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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