QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-35714
_____________________________________________
MPLX LP
(Exact name of registrant as specified in its charter)
_____________________________________________
Delaware
27-0005456
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
200 E. Hardin Street,
Findlay,
Ohio
45840
(Address of principal executive offices)
(Zip code)
(419) 421-2414
(Registrant’s telephone number, including area code)
_____________________________________________
Securities Registered pursuant to Section 12(b) of the Act
Title of each class
Trading symbol(s)
Name of each exchange on which registered
Common Units Representing Limited Partnership Interests
MPLX
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.) Yesx No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No x
MPLX LP had 1,012,303,833 common units outstanding at April 29, 2022.
Unless the context otherwise requires, references in this report to “MPLX LP,” “MPLX,” “the Partnership,” “we,” “our,” “us,” or like terms refer to MPLX LP and its subsidiaries. Additionally, throughout this Quarterly Report on Form 10-Q, we have used terms in our discussion of the business and operating results that have been defined in our Glossary of Terms.
Notes to Consolidated Financial Statements (Unaudited)
1. Description of the Business and Basis of Presentation
Description of the Business
MPLX LP is a diversified, large-cap master limited partnership formed by Marathon Petroleum Corporation that owns and operates midstream energy infrastructure and logistics assets, and provides fuels distribution services. References in this report to “MPLX LP,” “MPLX,” “the Partnership,” “we,” “ours,” “us,” or like terms refer to MPLX LP and its subsidiaries. References to “MPC” refer collectively to Marathon Petroleum Corporation as our sponsor and its subsidiaries, other than the Partnership. We are engaged in the gathering, transportation, storage and distribution of crude oil, refined products and other hydrocarbon-based products; the gathering, processing and transportation of natural gas; and the gathering, transportation, fractionation, storage and marketing of NGLs. MPLX’s principal executive office is located in Findlay, Ohio.
MPLX’s business consists of two segments based on the nature of services it offers: Logistics and Storage (“L&S”), which relates primarily to crude oil, refined products and other hydrocarbon-based products; and Gathering and Processing (“G&P”), which relates primarily to natural gas and NGLs. See Note 7 for additional information regarding the operations and results of these segments.
Basis of Presentation
The accompanying interim consolidated financial statements are unaudited; however, in the opinion of MPLX’s management, these statements reflect all adjustments necessary for a fair statement of the results for the periods reported. All such adjustments are of a normal, recurring nature unless otherwise disclosed. These interim consolidated financial statements, including the notes, have been prepared in accordance with the rules and regulations of the SEC applicable to interim period financial statements and do not include all of the information and disclosures required by GAAP for complete financial statements. Certain information derived from our audited annual financial statements, prepared in accordance with GAAP, has been condensed or omitted from these interim financial statements.
These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the full year.
MPLX’s consolidated financial statements include all majority-owned and controlled subsidiaries. For non-wholly owned consolidated subsidiaries, the interests owned by third parties have been recorded as “Noncontrolling interests” on the accompanying Consolidated Balance Sheets. Intercompany investments, accounts and transactions have been eliminated. MPLX’s investments in which MPLX exercises significant influence but does not control and does not have a controlling financial interest are accounted for using the equity method. MPLX’s investments in VIEs in which MPLX exercises significant influence but does not control and is not the primary beneficiary are also accounted for using the equity method.
Certain prior period financial statement amounts have been reclassified to conform to current period presentation.
2. Accounting Standards
Recently Adopted
ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance
In November 2021, the FASB issued guidance requiring disclosures for certain types of government assistance that have been accounted for by analogy to grant or contribution models. Disclosures will include information about the type of transactions, accounting and the impact on financial statements. MPLX prospectively adopted this standard in the first quarter of 2022. The adoption of this standard did not have a material impact on our financial statements or disclosures.
The following table presents MPLX’s equity method investments at the dates indicated:
Ownership as of
Carrying value at
March 31,
March 31,
December 31,
(In millions, except ownership percentages)
2022
2022
2021
L&S
MarEn Bakken Company LLC(1)
25%
$
502
$
449
Illinois Extension Pipeline Company, L.L.C.
35%
249
243
LOOP LLC
41%
274
265
Andeavor Logistics Rio Pipeline LLC(2)
67%
181
183
Minnesota Pipe Line Company, LLC
17%
182
183
Whistler Pipeline LLC(2)
38%
166
155
Explorer Pipeline Company
25%
65
66
W2W Holdings LLC(2)
50%
56
58
Other(2)
125
116
Total L&S
1,800
1,718
G&P
MarkWest Utica EMG, L.L.C.(2)
57%
681
680
Sherwood Midstream LLC(2)
50%
539
544
MarkWest EMG Jefferson Dry Gas Gathering Company, L.L.C.(2)
67%
336
332
MarkWest Torñado GP, L.L.C.(2)
60%
266
246
Rendezvous Gas Services, L.L.C.(2)
78%
145
147
Sherwood Midstream Holdings LLC(2)
51%
133
136
Centrahoma Processing LLC
40%
133
133
Other(2)
46
45
Total G&P
2,279
2,263
Total
$
4,079
$
3,981
(1) The investment in MarEn Bakken Company LLC includes our 9.19 percent indirect interest in a joint venture (“Dakota Access”) that owns and operates the Dakota Access Pipeline and Energy Transfer Crude Oil Pipeline projects, collectively referred to as the Bakken Pipeline system or DAPL.
(2) Investments deemed to be VIEs. Some investments included within “Other” have also been deemed to be VIEs.
For those entities that have been deemed to be VIEs, neither MPLX nor any of its subsidiaries have been deemed to be the primary beneficiary due to voting rights on significant matters. While we have the ability to exercise influence through participation in the management committees which make all significant decisions, we have equal influence over each committee as a joint interest partner and all significant decisions require the consent of the other investors without regard to economic interest; as such, we have determined that these entities should not be consolidated and apply the equity method of accounting with respect to our investments in each entity.
Sherwood Midstream LLC (“Sherwood Midstream”) has been deemed the primary beneficiary of Sherwood Midstream Holdings LLC (“Sherwood Midstream Holdings”) due to its controlling financial interest through its authority to manage the joint venture. As a result, Sherwood Midstream consolidates Sherwood Midstream Holdings. Therefore, MPLX also reports its portion of Sherwood Midstream Holdings’ net assets as a component of its investment in Sherwood Midstream. As of March 31, 2022, MPLX has a 24.55 percent indirect ownership interest in Sherwood Midstream Holdings through Sherwood Midstream.
MPLX’s maximum exposure to loss as a result of its involvement with equity method investments includes its equity investment, any additional capital contribution commitments and any operating expenses incurred by the subsidiary operator in excess of its compensation received for the performance of the operating services. MPLX did not provide any financial support to equity method investments that it was not contractually obligated to provide during the three months ended March 31, 2022.
Summarized financial information for MPLX’s equity method investments for the three months ended March 31, 2022 and 2021 is as follows:
Three Months Ended March 31, 2022
(In millions)
VIEs
Non-VIEs
Total
Revenues and other income
$
249
$
308
$
557
Costs and expenses
137
129
266
Income from operations
112
179
291
Net income
103
166
269
Income from equity method investments
$
55
$
44
$
99
Three Months Ended March 31, 2021
(In millions)
VIEs
Non-VIEs
Total
Revenues and other income
$
163
$
284
$
447
Costs and expenses
107
131
238
Income from operations
56
153
209
Net income
64
140
204
Income from equity method investments
$
39
$
31
$
70
Summarized balance sheet information for MPLX’s equity method investments as of March 31, 2022 and December 31, 2021 is as follows:
March 31, 2022
(In millions)
VIEs
Non-VIEs
Total
Current assets
$
386
$
370
$
756
Noncurrent assets
7,482
4,875
12,357
Current liabilities
773
259
1,032
Noncurrent liabilities
$
1,929
$
789
$
2,718
December 31, 2021
(In millions)
VIEs
Non-VIEs
Total
Current assets
$
335
$
411
$
746
Noncurrent assets
7,439
4,895
12,334
Current liabilities
217
310
527
Noncurrent liabilities
$
2,461
$
788
$
3,249
4. Related Party Agreements and Transactions
MPLX engages in transactions with both MPC and certain of its equity method investments as part of its normal business; however, transactions with MPC make up the majority of MPLX’s related party transactions. Transactions with related parties are further described below.
MPLX has various long-term, fee-based commercial agreements with MPC. Under these agreements, MPLX provides transportation, gathering, terminal, fuels distribution, marketing, storage, management, operational and other services to MPC. MPC has committed to provide MPLX with minimum quarterly throughput volumes on crude oil and refined products, other fees for storage capacity, operating and management fees, as well as reimbursements for certain direct and indirect costs. MPC has also committed to provide a fixed fee for 100 percent of available capacity for boats, barges and third-party chartered equipment under the marine transportation service agreement. MPLX also has a keep-whole commodity agreement with MPC under which MPC pays us a processing fee for NGLs related to keep-whole agreements and delivers shrink gas to the producers on our behalf. We pay MPC a marketing fee in exchange for assuming the commodity risk. Additionally, MPLX has obligations to MPC for services provided to MPLX by MPC under omnibus and employee services-type agreements as well as other agreements.
MPLX is party to a loan agreement with MPC Investment LLC (“MPC Investment”) (the “MPC Loan Agreement”). Under the terms of the agreement, MPC Investment extends loans to MPLX on a revolving basis as requested by MPLX and as agreed to by MPC Investment. The borrowing capacity of the MPC Loan Agreement is $1.5 billion aggregate principal amount of all loans outstanding at any one time. The loan agreement is scheduled to expire, and borrowings under the loan agreement are scheduled to mature and become due and payable, on July 31, 2024, provided that MPC Investment may demand payment of all or any portion of the outstanding principal amount of the loan, together with all accrued and unpaid interest and other amounts (if any), at any time prior to maturity. Borrowings under the MPC Loan Agreement bear interest at LIBOR plus 1.25 percent or such lower rate as would be applicable to such loans under the MPLX Credit Agreement as discussed in Note 11.
Activity on the MPC Loan Agreement was as follows:
Three Months Ended March 31,
(In millions)
2022
2021
Borrowings
$
1,849
$
2,241
Average interest rate of borrowings
1.400
%
1.371
%
Repayments
$
2,976
$
2,241
Outstanding balance at end of period
$
323
$
—
Related Party Revenue
Related party sales to MPC primarily consist of crude oil and refined products pipeline and trucking transportation services based on tariff or contracted rates; storage, terminal and fuels distribution services based on contracted rates; and marine transportation services. Related party sales to MPC also consist of revenue related to volume deficiency credits.
MPLX also has operating agreements with MPC under which it receives a fee for operating MPC’s retained pipeline assets and a fixed annual fee for providing oversight and management services required to run the marine business. MPLX also receives management fee revenue for engineering, construction and administrative services for operating certain of its equity method investments. These agreements are classified as “Other income - related parties” on the Consolidated Statements of Income.
Certain product sales to MPC net to zero within the consolidated financial statements as the transactions are recorded net due to the terms of the agreements under which such product was sold. For the three months ended March 31, 2022 and March 31, 2021, these sales totaled $293 million and $168 million, respectively.
Related Party Expenses
MPC charges MPLX for executive management services and certain general and administrative services to MPLX under the terms of our omnibus agreements (“Omnibus charges”). Omnibus charges included in “Rental cost of sales - related parties” primarily relate to services that support MPLX’s rental operations and maintenance of assets available for rent, as well as compensation expenses. Omnibus charges included in “Purchases - related parties” primarily relate to services that support MPLX’s operations and maintenance activities, as well as compensation expenses. Omnibus charges included in “General and administrative expenses” primarily relate to services that support MPLX’s executive management, accounting and human resources activities. MPLX also obtains employee services from MPC under employee services agreements (“ESA charges”). ESA charges for personnel directly involved in or supporting operations and maintenance activities related to rental services are classified as “Rental cost of sales - related parties.” ESA charges for personnel directly involved in or supporting operations and maintenance activities related to other services are classified as “Purchases - related parties.” ESA charges for personnel involved in executive management, accounting and human resources activities are classified as “General and administrative expenses.” In addition to these agreements, MPLX purchases products from MPC, makes payments to MPC in its capacity as general contractor to MPLX, and has certain lease agreements with MPC.
For the three months ended March 31, 2022 and March 31, 2021, “General and administrative expenses” incurred from MPC totaled $55 million and $57 million, respectively.
Some charges incurred under the omnibus and ESA agreements are related to engineering services and are associated with assets under construction. These charges are added to “Property, plant and equipment, net” on the Consolidated Balance Sheets. For the three months ended March 31, 2022 and March 31, 2021, these charges totaled $19 million and $12 million, respectively.
Assets and liabilities with related parties appearing on the Consolidated Balance Sheets are detailed in the table below. This table identifies the various components of related party assets and liabilities, including those associated with leases and deferred revenue on minimum volume commitments. If MPC fails to meet its minimum committed volumes, MPC will pay MPLX a deficiency payment based on the terms of the agreement. The deficiency amounts received under these agreements (excluding payments received under agreements classified as sales-type leases) are recorded as “Current liabilities - related parties.” In many cases, MPC may then apply the amount of any such deficiency payments as a credit for volumes in excess of its minimum volume commitment in future periods under the terms of the applicable agreements. MPLX recognizes related party revenues for the deficiency payments when credits are used for volumes in excess of minimum quarterly volume commitments, where it is probable the customer will not use the credit in future periods or upon the expiration of the credits. The use or expiration of the credits is a decrease in “Current liabilities - related parties.” Deficiency payments under agreements that have been classified as sales-type leases are recorded as a reduction against the corresponding lease receivable. In addition, capital projects MPLX undertakes at the request of MPC are reimbursed in cash and recognized as revenue over the remaining term of the applicable agreements or in some cases, as a contribution from MPC.
(1) Includes $323 million as of March 31, 2022 and $1,450 million as of December 31, 2021 related to outstanding borrowings on the intercompany loan with MPC, which are included in “Current liabilities - related parties” on the Consolidated Balance Sheets.
5. Equity
The changes in the number of common units during the three months ended March 31, 2022 are summarized below:
On November 2, 2020, MPLX announced the board authorization of a unit repurchase program for the repurchase of up to $1 billion of MPLX’s outstanding 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 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. During the three months ended March 31, 2022, we repurchased 3,119,522 common units at an average cost per unit of $32.06 per unit and paid $100 million of cash. As of March 31, 2022, we had $237 million remaining under our repurchase authorization.
Series B Preferred Units
MPLX has 600,000 outstanding units of 6.875 percent Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units representing limited partner interests of MPLX with a price to the public of $1,000 per unit (the “Series B preferred units”). The Series B preferred units are pari passu with the Series A preferred units with respect to distribution rights and rights upon liquidation. Series B preferred unitholders are entitled to receive a fixed distribution of $68.75 per unit, per annum, payable semi-annually in arrears on the 15th day, or the first business day thereafter, of February and August of each year up to and including February 15, 2023. After February 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 plus4.652 percent, in each case assuming a distribution is declared by the Board of Directors. MPLX has the right to redeem some or all of the Series B preferred units, at any time, on or after February 15, 2023 at the Series B preferred unit redemption price of $1,000 per unit, plus any accumulated and unpaid distributions up to the redemption date.
Cash distributions
On April 26, 2022, MPLX declared a cash distribution for the first quarter of 2022, totaling $713 million, or $0.7050 per common unit. This distribution will be paid on May 13, 2022 to common unitholders of record on May 6, 2022. This rate will also be received by Series A preferred unitholders.
Quarterly distributions for 2022 and 2021 are summarized below:
(Per common unit)
2022
2021
March 31,
$
0.7050
$
0.6875
In accordance with the distribution rights discussed above, MPLX made a cash distribution totaling $21 million to Series B unitholders on February 15, 2022.
The allocation of total quarterly cash distributions to limited and preferred unitholders is as follows for the three months ended March 31, 2022 and 2021. Distributions, although earned, are not accrued until declared. 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)
2022
2021
Common and preferred unit distributions:
Common unitholders, includes common units of general partner
$
713
$
707
Series A preferred unit distributions
21
20
Series B preferred unit distributions
11
11
Total cash distributions declared
$
745
$
738
6. Net Income/(Loss) Per Limited Partner Unit
Net income/(loss) per unit applicable to common units is computed by dividing net income attributable to MPLX LP less income allocated to participating securities by the weighted average number of common units outstanding.
During the three months ended March 31, 2022 and 2021, MPLX had participating securities consisting of common units, certain equity-based compensation awards, Series A preferred units and Series B preferred units and had dilutive potential common units consisting of certain equity-based compensation awards. Potential common units omitted from the diluted earnings per unit calculation for the three months ended March 31, 2022 and 2021 were less than 1 million.
Less: Distributions declared on Series A preferred units
21
20
Distributions declared on Series B preferred units
11
11
Limited partners’ distributions declared on MPLX common units (including common units of general partner)
713
707
Undistributed net gain attributable to MPLX LP
$
80
$
1
Three Months Ended March 31, 2022
(In millions, except per unit data)
Limited Partners’ Common Units
Series A Preferred Units
Series B Preferred Units
Total
Basic and diluted net income attributable to MPLX LP per unit
Net income attributable to MPLX LP:
Distributions declared
$
713
$
21
$
11
$
745
Undistributed net gain attributable to MPLX LP
78
2
—
80
Net income attributable to MPLX LP(1)
$
791
$
23
$
11
$
825
Weighted average units outstanding:
Basic
1,015
Diluted
1,015
Net income attributable to MPLX LP per limited partner unit:
Basic
$
0.78
Diluted
$
0.78
(1) Allocation of net income attributable to MPLX LP assumes all earnings for the period had been distributed based on the distribution priorities applicable to the period.
Three Months Ended March 31, 2021
(In millions, except per unit data)
Limited Partners’ Common Units
Series A Preferred Units
Series B Preferred Units
Total
Basic and diluted net income attributable to MPLX LP per unit
Net income attributable to MPLX LP:
Distributions declared
$
707
$
20
$
11
$
738
Undistributed net gain attributable to MPLX LP
1
—
—
1
Net income attributable to MPLX LP(1)
$
708
$
20
$
11
$
739
Weighted average units outstanding:
Basic
1,037
Diluted
1,037
Net income attributable to MPLX LP per limited partner unit:
Basic
$
0.68
Diluted
$
0.68
(1) Allocation of net income attributable to MPLX LP assumes all earnings for the period had been distributed based on the distribution priorities applicable to the period.
MPLX’s chief operating decision maker is the chief executive officer (“CEO”) of its general partner. The CEO reviews MPLX’s discrete financial information, makes operating decisions, assesses financial performance and allocates resources on a type of service basis. MPLX has two reportable segments: L&S and G&P. Each of these segments is organized and managed based upon the nature of the products and services it offers.
•L&S – transports, gathers, stores and distributes crude oil, refined products, and other hydrocarbon-based products. Also includes the operation of refining logistics, fuels distribution and inland marine businesses, terminals, rail facilities, and storage caverns.
•G&P – gathers, processes and transports natural gas; and gathers, transports, fractionates, stores and markets NGLs.
Our CEO evaluates the performance of our segments using Segment Adjusted EBITDA. Amounts included in net income and excluded from Segment Adjusted EBITDA include: (i) depreciation and amortization; (ii) interest and other financial costs; (iii) impairment expense; (iv) income/(loss) from equity method investments; (v) distributions and adjustments related to equity method investments; (vi) noncontrolling interests; and (vii) 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 revenues and other income, Segment Adjusted EBITDA, restructuring expenses, capital expenditures and investments in unconsolidated affiliates for our reportable segments:
Three Months Ended March 31,
(In millions)
2022
2021
L&S
Service revenue
$
983
$
953
Rental income
175
249
Product related revenue
4
4
Sales-type lease revenue
111
37
Income from equity method investments
52
36
Other income
12
15
Total segment revenues and other income(1)
1,337
1,294
Segment Adjusted EBITDA(2)
904
896
Capital expenditures
77
59
Investments in unconsolidated affiliates
68
9
G&P
Service revenue
486
508
Rental income
81
92
Product related revenue
661
397
Income from equity method investments
47
34
Other income/(loss)
(2)
14
Total segment revenues and other income(1)
1,273
1,045
Segment Adjusted EBITDA(2)
489
456
Capital expenditures
95
30
Investments in unconsolidated affiliates
$
42
$
26
(1) Within the total segment revenues and other income amounts presented above, third party revenues for the L&S segment were $135 million and $129 million for the three months ended March 31, 2022 and March 31, 2021, respectively. Third party revenues for the G&P segment were $1,212 million and $989 million for the three months ended March 31, 2022 and March 31, 2021, respectively.
(2) See below for the reconciliation from Segment Adjusted EBITDA to “Net income.”
The table below provides a reconciliation between “Net income” and Segment Adjusted EBITDA.
Three Months Ended March 31,
(In millions)
2022
2021
Reconciliation to Net income:
L&S Segment Adjusted EBITDA
$
904
$
896
G&P Segment Adjusted EBITDA
489
456
Total reportable segments
1,393
1,352
Depreciation and amortization(1)
(313)
(329)
Interest and other financial costs
(222)
(225)
Income from equity method investments
99
70
Distributions/adjustments related to equity method investments
(132)
(121)
Other
(1)
(9)
Adjusted EBITDA attributable to noncontrolling interests
9
10
Net income
$
833
$
748
(1) Depreciation and amortization attributable to L&S was $130 million and $147 million for the three months ended March 31, 2022 and March 31, 2021, respectively. Depreciation and amortization attributable to G&P was $183 million and $182 million for the three months ended March 31, 2022 and March 31, 2021, respectively.
8. Property, Plant and Equipment
Property, plant and equipment with associated accumulated depreciation is shown below:
March 31, 2022
December 31, 2021
(In millions)
Gross PP&E
Accumulated Depreciation
Net PP&E
Gross PP&E
Accumulated Depreciation
Net PP&E
L&S
$
12,438
$
3,347
$
9,091
$
12,371
$
3,227
$
9,144
G&P
14,253
3,432
10,821
14,175
3,277
10,898
Total
$
26,691
$
6,779
$
19,912
$
26,546
$
6,504
$
20,042
9. Fair Value Measurements
Fair Values – Recurring
Fair value measurements and disclosures relate primarily to MPLX’s derivative positions as discussed in Note 10.
Level 3 instruments relate to an embedded derivative liability for a natural gas purchase commitment embedded in a keep-whole processing agreement. The fair value calculation for these Level 3 instruments used significant unobservable inputs including: (1) NGL prices interpolated and extrapolated due to inactive markets ranging from $0.73 to $2.38 per gallon with a weighted average of $0.97 per gallon and (2) the probability of renewal of 100 percent for the five-year renewal term of the gas purchase commitment and related keep-whole processing agreement. Increases or decreases in the fractionation spread result in an increase or decrease in the fair value of the embedded derivative liability, respectively. Beyond the embedded derivative discussed above, we had no outstanding commodity derivative contracts as of March 31, 2022 or December 31, 2021.
The following table is a reconciliation of the net beginning and ending balances recorded for net assets and liabilities classified as Level 3 in the fair value hierarchy.
Three Months Ended March 31,
2022
2021
(In millions)
Embedded Derivatives in Commodity Contracts (net)
Embedded Derivatives in Commodity Contracts (net)
Fair value at beginning of period
$
(108)
$
(63)
Total gain/(loss) (realized and unrealized) included in earnings(1)
4
(6)
Settlements
5
3
Fair value at end of period
(99)
(66)
The amount of total gain/(loss) for the period included in earnings attributable to the change in unrealized gain/(loss) relating to liabilities still held at end of period
$
5
$
(5)
(1) Gain/(loss) on derivatives embedded in commodity contracts are recorded in “Purchased product costs” on the Consolidated Statements of Income.
Fair Values – Reported
MPLX’s primary financial instruments are cash and cash equivalents, receivables, receivables from related parties, lease receivables from related parties, accounts payable, payables to related parties and debt. MPLX’s fair value assessment incorporates a variety of considerations, including (1) the duration of the instruments, (2) MPC’s investment-grade credit rating and (3) the historical incurrence of and expected future insignificance of bad debt expense, which includes an evaluation of counterparty credit risk. MPLX believes the carrying values of its current assets and liabilities approximate fair value. The recorded value of the amounts outstanding under the bank revolving credit facility, if any, approximates fair value due to the variable interest rate that approximate current market rates. Derivative instruments are recorded at fair value, based on available market information (see Note 10).
The fair value of MPLX’s debt is estimated based on recent market non-binding indicative quotes. The debt fair values are considered Level 3 measurements. The following table summarizes the fair value and carrying value of our third-party debt, excluding finance leases and unamortized debt issuance costs:
March 31, 2022
December 31, 2021
(In millions)
Fair Value
Carrying Value
Fair Value
Carrying Value
Outstanding debt(1)
$
20,392
$
19,864
$
20,779
$
18,664
(1) Amounts outstanding under the MPC Loan Agreement are not included in the table above, as the carrying value approximates fair value. This balance is reflected in “Current liabilities - related parties” on the Consolidated Balance Sheets.
10. Derivative Financial Instruments
As of March 31, 2022, MPLX had no commodity contracts beyond the embedded derivative discussed below.
Embedded Derivative - MPLX has a natural gas purchase commitment embedded in a keep-whole processing agreement with a producer customer in the Southern Appalachian region expiring in December 2027. The customer has the unilateral option to extend the agreement for onefive-year term through December 2032. For accounting purposes, the natural gas purchase commitment and the term extending option has been aggregated into a single compound embedded derivative. The probability of the customer exercising its option is determined based on assumptions about the customer’s potential business strategy decision points that may exist at the time they would elect whether to renew the contract. The changes in fair value of this compound embedded derivative are based on the difference between the contractual and index pricing, the probability of the producer customer exercising its option to extend and the estimated favorability of these contracts compared to current market conditions. The changes in fair value are recorded in earnings through “Purchased product costs” on the Consolidated Statements of Income. For further information regarding the fair value measurement of derivative instruments, see Note 9. As of March 31, 2022 and December 31, 2021, the estimated fair value of this contract was a liability of $99 million and $108 million, respectively.
Certain derivative positions are subject to master netting agreements, therefore, MPLX has elected to offset derivative assets and liabilities that are legally permissible to be offset. As of March 31, 2022 and December 31, 2021, there were no derivative assets or liabilities that were offset on the Consolidated Balance Sheets. The impact of MPLX’s derivative instruments on its Consolidated Balance Sheets is summarized below:
(In millions)
March 31, 2022
December 31, 2021
Derivative contracts not designated as hedging instruments and their balance sheet location
Asset
Liability
Asset
Liability
Commodity contracts(1)
Other current assets / Other current liabilities
$
—
$
(16)
$
—
$
(15)
Other noncurrent assets / Deferred credits and other liabilities
—
(83)
—
(93)
Total
$
—
$
(99)
$
—
$
(108)
(1) Includes the embedded derivative in the commodity contract discussed above.
We make a distinction between realized or 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. The impact of MPLX’s derivative contracts not designated as hedging instruments and the location of gains and losses recognized on the Consolidated Statements of Income is summarized below:
Three Months Ended March 31,
(In millions)
2022
2021
Purchased product costs
Realized loss
$
(5)
$
(3)
Unrealized gain/(loss)
9
(3)
Purchased product cost derivative gain/(loss)
$
4
$
(6)
11. Debt
MPLX’s outstanding borrowings consist of the following:
(In millions)
March 31, 2022
December 31, 2021
MPLX LP:
MPLX Credit Agreement
$
—
$
300
Fixed rate senior notes
20,032
18,532
Consolidated subsidiaries:
MarkWest
23
23
ANDX
45
45
Financing lease obligations
8
9
Total
20,108
18,909
Unamortized debt issuance costs
(116)
(102)
Unamortized discount/premium
(236)
(236)
Amounts due within one year
(999)
(499)
Total long-term debt due after one year
$
18,757
$
18,072
Credit Agreement
MPLX’s amended and restated credit agreement (as amended, the “MPLX Credit Agreement”), provides for borrowings up to $3.5 billion and a term that extends to July 2024. During the three months ended March 31, 2022, MPLX borrowed $900 million under the MPLX Credit Agreement, at an average interest rate of 1.451 percent,and repaid $1,200 million. At March 31, 2022, MPLX had no outstanding borrowings and less than $1 million in letters of credit outstanding under the MPLX Credit Agreement, resulting in total availability of $3.5 billion, or 100 percent of the borrowing capacity.
MPLX’s senior notes, including those issued by consolidated subsidiaries, consist of various series of senior notes maturing between 2022 and 2058 with interest rates ranging from 1.750 percent to 5.500 percent. Interest on each series of notes is payable semi-annually in arrears on various dates depending on the series of the notes.
On March 14, 2022, MPLX issued $1.5 billion aggregate principal amount of 4.950 percent senior notes due March 2052 (the “2052 Senior Notes”) in an underwritten public offering. The 2052 Senior Notes were offered at a price to the public of 98.982 percent with interest payable semi-annually in arrears, commencing on September 14, 2022. The net proceeds were used to repay amounts outstanding under the MPC Intercompany Loan Agreement and the MPLX Credit Agreement.
12. Revenue
Disaggregation of Revenue
The following tables represent a disaggregation of revenue for each reportable segment for the three months ended March 31, 2022 and 2021:
Three Months Ended March 31, 2022
(In millions)
L&S
G&P
Total
Revenues and other income:
Service revenue
$
72
$
482
$
554
Service revenue - related parties
911
4
915
Service revenue - product related
—
123
123
Product sales
1
496
497
Product sales - related parties
3
42
45
Total revenues from contracts with customers
$
987
$
1,147
2,134
Non-ASC 606 revenue(1)
476
Total revenues and other income
$
2,610
Three Months Ended March 31, 2021
(In millions)
L&S
G&P
Total
Revenues and other income:
Service revenue
$
84
$
505
$
589
Service revenue - related parties
869
3
872
Service revenue - product related
—
77
77
Product sales
1
281
282
Product sales - related parties
3
39
42
Total revenues from contracts with customers
$
957
$
905
1,862
Non-ASC 606 revenue(1)
477
Total revenues and other income
$
2,339
(1) Non-ASC 606 Revenue includes rental income, sales-type lease revenue, income from equity method investments, and other income.
Contract Balances
Contract assets typically relate to deficiency payments related to minimum volume commitments and aid in construction agreements where the revenue recognized and MPLX’s rights to consideration for work completed exceeds the amount billed to the customer. Contract assets are included in “Other current assets” and “Other noncurrent assets” on the Consolidated Balance Sheets.
Contract liabilities, which we refer to as “Deferred revenue” and “Long-term deferred revenue,” typically relate to advance payments for aid in construction agreements and deferred customer credits associated with makeup rights and minimum volume commitments. Related to minimum volume commitments, breakage is estimated and recognized into service revenue in
instances where it is probable the customer will not use the credit in future periods. We classify contract liabilities as current or long-term based on the timing of when we expect to recognize revenue.
“Receivables, net” primarily relate to our commodity sales. Portions of the “Receivables, net” balance are attributed to the sale of commodity product controlled by MPLX prior to sale while a significant portion of the balance relates to the sale of commodity product on behalf of our producer customers. The sales and related “Receivables, net” are commingled and excluded from the table below. MPLX remits the net sales price back to our producer customers upon completion of the sale. Each period end, certain amounts within accounts payable relate to our payments to producer customers. Such amounts are not deemed material at period end as a result of when we settle with each producer.
The tables below reflect the changes in our contract balances for the three-month periods ended March 31, 2022 and 2021:
(In millions)
Balance at December 31, 2021(1)
Additions/ (Deletions)
Revenue Recognized(2)
Balance at March 31, 2022
Contract assets
$
25
$
(18)
$
—
$
7
Long-term contract assets
2
—
—
2
Deferred revenue
56
11
(9)
58
Deferred revenue - related parties
60
34
(26)
68
Long-term deferred revenue
135
2
—
137
Long-term deferred revenue - related parties
31
—
—
31
Long-term contract liabilities
$
5
$
—
$
—
$
5
(In millions)
Balance at December 31, 2020(1)
Additions/ (Deletions)
Revenue Recognized(2)
Balance at March 31, 2021
Contract assets
$
40
$
(27)
$
—
$
13
Long-term contract assets
2
—
—
2
Deferred revenue
37
7
(1)
43
Deferred revenue - related parties
91
21
(20)
92
Long-term deferred revenue
119
4
—
123
Long-term deferred revenue - related parties
48
(4)
—
44
Long-term contract liabilities
$
6
$
—
$
—
$
6
(1) Balance represents ASC 606 portion of each respective line item.
(2) No significant revenue was recognized related to past performance obligations in the current periods.
Remaining Performance Obligations
The table below includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period.
As of March 31, 2022, the amounts allocated to contract assets and contract liabilities on the Consolidated Balance Sheets are $293 million and are reflected in the amounts below. This will be recognized as revenue as the obligations are satisfied, which is expected to occur over the next 22 years. Further, MPLX does not disclose variable consideration due to volume variability in the table below.
(In millions)
2022
$
1,432
2023
1,771
2024
1,633
2025
1,560
2026 and thereafter
3,362
Total revenue on remaining performance obligations(1)(2)(3)
$
9,758
(1) All fixed consideration from contracts with customers is included in the amounts presented above. Variable consideration that is constrained or not required to be estimated as it reflects our efforts to perform is excluded.
(2) Arrangements deemed implicit leases and sales-type leases are excluded from this table.
(3) Only minimum volume commitments that are deemed fixed are included in the table above. MPLX has various minimum volume commitments in processing arrangements that vary based on the actual Btu content of the gas received. These amounts are deemed variable consideration and are excluded from the table above.
We do not disclose information on the future performance obligations for any contract with an original expected duration of one year or less.
13. Supplemental Cash Flow Information
Three Months Ended March 31,
(In millions)
2022
2021
Net cash provided by operating activities included:
Interest paid (net of amounts capitalized)
$
213
$
231
The Consolidated Statements of Cash Flows exclude changes to the Consolidated Balance Sheets that do not affect cash. The following is the change of additions to property, plant and equipment related to capital accruals:
Three Months Ended March 31,
(In millions)
2022
2021
Increase/(decrease) in capital accruals
$
3
$
(37)
14. Commitments and Contingencies
MPLX is the subject of, or a party to, a number of pending or threatened legal actions, contingencies and commitments involving a variety of matters, including laws and regulations relating to the environment. Some of these matters are discussed below. For matters for which MPLX has not recorded a liability, MPLX is unable to estimate a range of possible loss because the issues involved have not been fully developed through pleadings, discovery or court proceedings. However, the ultimate resolution of some of these contingencies could, individually or in the aggregate, be material.
Environmental Matters
MPLX is subject to federal, state and local laws and regulations relating to the environment. These laws generally provide for control of pollutants released into the environment and require responsible parties to undertake remediation of hazardous waste disposal sites. Penalties may be imposed for non-compliance.
At March 31, 2022 and December 31, 2021, accrued liabilities for remediation totaled $42 million and $23 million, respectively. It is not presently possible to estimate the ultimate amount of all remediation costs that might be incurred or the penalties, if any, that may be imposed.
MPLX is involved in environmental enforcement matters arising in the ordinary course of business. While the outcome and impact to MPLX cannot be predicted with certainty, management believes the resolution of these environmental matters will not, individually or collectively, have a material adverse effect on its consolidated results of operations, financial position or cash flows.
MPLX is also a party to a number of other lawsuits and other proceedings arising in the ordinary course of business. While the ultimate outcome and impact to MPLX cannot be predicted with certainty, management believes the resolution of these other lawsuits and proceedings will not, individually or collectively, have a material adverse effect on its consolidated financial position, results of operations or cash flows.
Guarantees
Over the years, MPLX has sold various assets in the normal course of its business. Certain of the related agreements contain performance and general guarantees, including guarantees regarding inaccuracies in representations, warranties, covenants and agreements, and environmental and general indemnifications that require MPLX to perform upon the occurrence of a triggering event or condition. These guarantees and indemnifications are part of the normal course of selling assets. MPLX is typically not able to calculate the maximum potential amount of future payments that could be made under such contractual provisions because of the variability inherent in the guarantees and indemnities. Most often, the nature of the guarantees and indemnities is such that there is no appropriate method for quantifying the exposure because the underlying triggering event has little or no past experience upon which a reasonable prediction of the outcome can be based.
We hold a 9.19 percent indirect interest in a joint venture (“Dakota Access”) that owns and operates the Dakota Access Pipeline and Energy Transfer Crude Oil Pipeline projects, collectively referred to as the Bakken Pipeline system or DAPL. In 2020, the
U.S. District Court for the District of Columbia (the “D.D.C.”) ordered the U.S. Army Corps of Engineers (“Army Corps”), which granted permits and an easement for the Bakken Pipeline system, to prepare an environmental impact statement (“EIS”) relating to an easement under Lake Oahe in North Dakota. The D.D.C. later vacated the easement. The EIS is currently expected to be completed in the second half of 2022.
In May 2021, the D.D.C. denied a renewed request for an injunction to shut down the pipeline while the EIS is being prepared. In June 2021, the D.D.C. issued an order dismissing without prejudice the tribes’ claims against the Dakota Access Pipeline. The litigation could be reopened or new litigation challenging the EIS, once completed, could be filed. The pipeline remains operational.
We have entered into a Contingent Equity Contribution Agreement whereby MPLX LP, along with the other joint venture owners in the Bakken Pipeline system, has agreed to make equity contributions to the joint venture upon certain events occurring to allow the entities that own and operate the Bakken Pipeline system to satisfy their senior note payment obligations. The senior notes were issued to repay amounts owed by the pipeline companies to fund the cost of construction of the Bakken Pipeline system. If the pipeline were temporarily shut down, MPLX would have to contribute its 9.19 percent pro rata share of funds required to pay interest accruing on the notes and any portion of the principal that matures while the pipeline is shutdown. MPLX also expects to contribute its 9.19 percent pro rata share of any costs to remediate any deficiencies to reinstate the permit and/or return the pipeline into operation. If the vacatur of the easement permit results in a permanent shutdown of the pipeline, MPLX would have to contribute its 9.19 percent pro rata share of the cost to redeem the bonds (including the one percent redemption premium required pursuant to the indenture governing the notes) and any accrued and unpaid interest. As of March 31, 2022, our maximum potential undiscounted payments under the Contingent Equity Contribution Agreement were approximately $170 million.
Other Legal Proceedings
In July 2020, Tesoro High Plains Pipeline Company, LLC (“THPP”), a subsidiary of MPLX, received a Notification of Trespass Determination from the Bureau of Indian Affairs (“BIA”) relating to a portion of the Tesoro High Plains Pipeline that crosses the Fort Berthold Reservation in North Dakota. The notification demanded the immediate cessation of pipeline operations and assessed trespass damages of approximately $187 million. On appeal, the Assistant Secretary - Indian Affairs issued an order vacating the BIA’s trespass order and remanded to the Regional Director for the BIA Great Plains Region to issue a new decision based on specific criteria. On December 15, 2020, the Regional Director of the BIA issued a new trespass notice to THPP, finding that THPP was in trespass and assessing trespass damages of approximately $4 million (including interest), which has been paid. The order also required that THPP immediately cease and desist use of the portion of the pipeline that crosses the property at issue. THPP has complied with the Regional Director’s December 15, 2020 notice. In March 2021, THPP received a copy of an order purporting to vacate all orders related to THPP’s alleged trespass issued by the BIA between July 2, 2020 and January 14, 2021. The order directs the Regional Director of the BIA to reconsider the issue of THPP’s alleged trespass and issue a new order, if necessary, after all interested parties have had an opportunity to be heard. Subsequently, landowners voluntarily dismissed the suit filed in the District of North Dakota. On April 23, 2021, THPP filed a lawsuit in the District of North Dakota against the United States of America, the U.S. Department of the Interior and the BIA (together, the “U.S. Government Parties”) challenging the March order purporting to vacate all previous orders related to THPP’s alleged trespass.
On February 8, 2022, the U.S. Government Parties filed their answer to THPP’s suit, asserting counterclaims for trespass and ejectment. The U.S. Government Parties claim THPP is in continued trespass with respect to the pipeline and seek disgorgement of pipeline profits from June 1, 2013 to present, removal of the pipeline and remediation. We intend to vigorously defend ourselves against these counterclaims. We continue to work towards a settlement of this matter with holders of the property rights at issue.
Contractual Commitments and Contingencies
From time to time and in the ordinary course of business, MPLX and its affiliates provide guarantees of MPLX’s subsidiaries payment and performance obligations in the G&P segment. Certain natural gas processing and gathering arrangements require MPLX to construct new natural gas processing plants, natural gas gathering pipelines and NGL pipelines and contain certain fees and charges if specified construction milestones are not achieved for reasons other than force majeure. In certain cases, certain producers may have the right to cancel the processing arrangements if there are significant delays that are not due to force majeure. As of March 31, 2022, management does not believe there are any indications that MPLX will not be able to meet the construction milestones, that force majeure does not apply or that such fees and charges will otherwise be triggered.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 ended December 31, 2021.
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 financial and operating results;
•environmental, social and governance (“ESG”) goals and targets, including those related to greenhouse gas emissions, diversity and inclusion and ESG reporting;
•our plans to achieve our ESG goals and targets and to monitor and report progress thereon;
•the success or timing of completion of ongoing or anticipated capital or maintenance projects;
•the timing and amount of future distributions or unit repurchases; and
•the anticipated effects of actions of third parties such as competitors, activist investors, 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. 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 continuance or escalation of the military conflict between Russia and Ukraine, and related sanctions;
•general economic, political or regulatory developments, including inflation, changes in governmental policies relating to refined petroleum products, crude oil, natural gas or NGLs, or taxation;
•the magnitude, duration and extent of future resurgences of the COVID-19 pandemic and its restrictions, including travel restrictions, business and school closures, increased remote work, stay-at-home orders and other actions taken by individuals, governments and the private sector to stem the spread of the virus;
•the ability of MPC to achieve its strategic objectives and the effects of those strategic decisions on us;
•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 to complete any divestitures on commercially reasonable terms and/or within the expected timeframe, and the effects of any such divestitures on our business, financial condition, results of operations and cash flows;
•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;
•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 and safety, energy and other policies and regulations or enforcement actions initiated thereunder;
•adverse results in litigation;
•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;
•changes in 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;
•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 the expansion 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, means of transportation, 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 December 31, 2021. We undertake no obligation to update any forward-looking statement 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. The business consists of two segments based on the nature of services it offers: Logistics and Storage (“L&S”), and Gathering and Processing (“G&P”). The L&S segment is engaged in the gathering, transportation, storage and distribution of crude oil, refined products and other hydrocarbon-based products. The L&S segment also includes the operation of our refining logistics, fuels distribution and inland marine businesses, terminals, rail facilities and storage caverns. The G&P segment provides gathering, processing and transportation of natural gas; and the gathering, transportation, fractionation, storage and marketing of NGLs.
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 ended March 31, 2022 and March 31, 2021 are shown in the chart below. 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.
•Generated net cash provided by operating activities of $1,125 million and free cash flow of $850 million in the first quarter of 2022.
•Announced a first quarter 2022 distribution of $0.7050 per common unit, resulting in a distribution coverage ratio of 1.65x for the first quarter.
•Returned $100 million of cash to unitholders through the repurchase of over 3 million common units under our unit repurchase program.
•Issued $1.5 billion aggregate principal amount of 4.950 percent senior notes due March 2052 (the “2052 Senior Notes”) in an underwritten public offering. The net proceeds were used to repay amounts outstanding under the MPC Intercompany Loan Agreement and the MPLX Credit Agreement.
Current Economic Environment
Through the first three months of 2022, we continue to see recovery in the environment in which our business operates. We are unable to predict the potential effects that further resurgences of COVID-19 or the continuance or escalation of the military conflict between Russia and Ukraine may have on our financial position and results. In response to this business environment, MPLX remains focused on executing its strategic priorities of strict capital discipline, embedding a low-cost culture, and portfolio optimization.
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, DCF, free cash flow (“FCF”) and free cash flow after distributions. 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. 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.
We define Adjusted EBITDA as net income adjusted for: (i) depreciation and amortization; (ii) provision/(benefit) for income taxes; (iii) interest and other financial costs; (iv) impairment expense; (v) income from equity method investments; (vi) distributions and adjustments related to equity method investments; (vii) noncontrolling interests; and (viii) other adjustments as deemed necessary. We also use DCF, which we define as Adjusted EBITDA adjusted for: (i) deferred revenue impacts; (ii) sales-type lease payments, net of income; (iii) net interest and other financial costs; (iv) net maintenance capital expenditures; (v) equity method investment capital expenditures paid out; and (vi) other adjustments as deemed necessary. Segment Adjusted EBITDA represents Adjusted EBITDA attributable to the reportable segments.
We define FCF as net cash provided by operating activities adjusted for (i) net cash used in investing activities; (ii) cash contributions from MPC; (iii) cash contributions from noncontrolling interests and (iv) cash distributions to noncontrolling interests. We define free cash flow after distributions as FCF less base distributions to common and preferred unitholders.
We believe that the presentation of Adjusted EBITDA, DCF, FCF and free cash flow after distributions 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 while the GAAP measure most directly comparable to FCF and free cash flow after distributions is net cash provided by operating activities. These non-GAAP financial measures should not be considered alternatives to GAAP net income or net cash provided by operating activities as they 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. These non-GAAP financial measures should not be considered in isolation or as substitutes for analysis of our results as reported under GAAP. Additionally, because non-GAAP financial measures may be defined differently by other companies in our industry, our definitions 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 the Results of Operations section. For a reconciliation of FCF and free cash flow after distributions to their most directly comparable measure calculated and presented in accordance with GAAP, see the Liquidity and Capital resources section.
Comparability of our Financial Results
The Javelina divestiture, which was completed on February 12, 2021, has impacted comparability of our financial results. Prior to the sale, Javelina was reported within the G&P segment.
During the normal course of business, we amend or modify our contractual agreements with customers. These amendments or modifications require the agreements to be reassessed under ASC 842, which can impact the classification of revenues or costs associated with the agreement. These reassessments may impact the comparability of our financial results.
The following tables and discussion are a summary of our results of operations for the three months ended March 31, 2022 and 2021, including a reconciliation of Adjusted EBITDA and DCF from “Net income” and “Net cash provided by operating activities,” to the most directly comparable GAAP financial measures.
Three Months Ended March 31,
(In millions)
2022
2021
Variance
Revenues and other income:
Total revenues and other income
$
2,610
$
2,339
$
271
Costs and expenses:
Cost of revenues (excludes items below)
287
273
14
Purchased product costs
467
276
191
Rental cost of sales
37
32
5
Rental cost of sales - related parties
15
39
(24)
Purchases - related parties
319
298
21
Depreciation and amortization
313
329
(16)
General and administrative expenses
78
86
(8)
Other taxes
34
32
2
Total costs and expenses
1,550
1,365
185
Income from operations
1,060
974
86
Related party interest and other financial costs
4
—
4
Interest expense, net of amounts capitalized
198
198
—
Other financial costs
20
27
(7)
Income before income taxes
838
749
89
Provision for income taxes
5
1
4
Net income
833
748
85
Less: Net income attributable to noncontrolling interests
8
9
(1)
Net income attributable to MPLX LP
825
739
86
Adjusted EBITDA attributable to MPLX LP(1)
1,393
1,352
41
DCF attributable to GP and LP unitholders(1)
$
1,178
$
1,106
$
72
(1) Non-GAAP measure. See reconciliation below to the most directly comparable GAAP measures.
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
$
1,125
$
1,124
$
1
Changes in working capital items
118
37
81
All other, net
(45)
(15)
(30)
Gain on extinguishment of debt
—
(12)
12
Net interest and other financial costs(1)
204
220
(16)
Other adjustments to equity method investment distributions
12
2
10
Other
(12)
6
(18)
Adjusted EBITDA
1,402
1,362
40
Adjusted EBITDA attributable to noncontrolling interests
(9)
(10)
1
Adjusted EBITDA attributable to MPLX LP
1,393
1,352
41
Deferred revenue impacts
24
22
2
Sales-type lease payments, net of income
5
—
5
Net interest and other financial costs(1)
(204)
(220)
16
Maintenance capital expenditures, net of reimbursements
(14)
(11)
(3)
Equity method investment capital expenditures paid out
(3)
(1)
(2)
Other
9
(5)
14
DCF
1,210
1,137
73
Preferred unit distributions
(32)
(31)
(1)
DCF attributable to GP and LP unitholders
$
1,178
$
1,106
$
72
(1) Excludes gain/ loss on extinguishment of debt and amortization of deferred financing costs.
Three months ended March 31, 2022 compared to three months ended March 31, 2021
Total revenues and other income increased $271 million in the first quarter of 2022 compared to the same period of 2021. This was primarily due to higher prices and volumes in most regions in the G&P segment of approximately $274 million. There were also increased pipeline fees in the L&S segment due to higher pipeline throughput outweighing decreased average tariff rates, as well as increased equity method income across both segments. These increases were partially offset by a loss on disposal of assets.
Cost of revenues increased $14 million in the first quarter of 2022 compared to the same period of 2021. This was primarily due to higher environmental response and remediation costs.
Purchased product costs increased $191 million in the first quarter of 2022 compared to the same period of 2021 This was primarily due to higher prices of $143 million in the Southwest and Southern Appalachia and higher volumes in the Southwest.
Rental cost of sales and rental cost of sales - related parties decreased $19 million in the first quarter of 2022 compared to the same period of 2021. This was primarily due to modifications to lease contracts which resulted in costs now being recorded to purchases - related parties, as noted below, as opposed to rental cost of sales - related parties.
Purchases - related parties increased $21 million in the first quarter of 2022 compared to the same period of 2021. This was primarily due to modifications to lease contracts which resulted in costs now being recorded to purchases - related parties as opposed to rental cost of sales - related parties, as noted above.
Depreciation and amortization decreased $16 million in the first quarter of 2022 compared to the same period of 2021. This was primarily due to the prior year derecognition of assets reclassified as sales-type leases due to contract modifications.
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) interest and other financial costs; (iii) impairment expense; (iv) income/(loss) from equity method investments; (v) distributions and adjustments related to equity method investments; (vi) noncontrolling interests; and (vii) 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 March 31, 2022 and 2021.
L&S Segment
First Quarter L&S Segment Financial Highlights (in millions)
Three Months Ended March 31,
(In millions)
2022
2021
Variance
Service revenue
$
983
$
953
$
30
Rental income
175
249
(74)
Product related revenue
4
4
—
Sales-type lease revenue
111
37
74
Income from equity method investments
52
36
16
Other income
12
15
(3)
Total segment revenues and other income
1,337
1,294
43
Cost of revenues
141
144
(3)
Purchases - related parties
239
215
24
Depreciation and amortization
130
147
(17)
General and administrative expenses
43
46
(3)
Other taxes
21
19
2
Segment income from operations
763
723
40
Depreciation and amortization
130
147
(17)
Income from equity method investments
(52)
(36)
(16)
Distributions/adjustments related to equity method investments
58
58
—
Other
5
4
1
Segment adjusted EBITDA(1)
904
896
8
Capital expenditures
77
59
18
Investments in unconsolidated affiliates(2)
$
68
$
9
$
59
(1) See the Reconciliation of Adjusted EBITDA attributable to MPLX LP and DCF attributable to GP and LP unitholders from Net income table for the reconciliation to the most directly comparable GAAP measure.
(2) The three months ended March 31, 2022 includes a contribution of $60 million to our Bakken Pipeline joint venture to fund our share of a debt repayment by the joint venture.
Three months ended March 31, 2022 compared to three months ended March 31, 2021
Service revenue increased $30 million in the first quarter of 2022 compared to the same period of 2021. This was primarily due to a net increase in pipeline fees due to increased throughput outweighing lower average tariff rates, as well as to an increase of $15 million from changes in the presentation of lease income between service revenue, rental income and sales-type lease revenue due to modifications to lease contracts. Fee escalations also contributed to the increase.
Rental income decreased $74 million in the first quarter of 2022 compared to the same period of 2021. This was primarily due to a net decrease of $88 million from changes in the presentation of lease income between service revenue, rental income and sales-type lease revenue due to modifications to lease contracts. The decrease was partially offset by fee escalations.
Sales-type lease revenue - related parties increased $74 million in the first quarter of 2022 compared to the same period of 2021. This was primarily due to an increase of $73 million from changes in the presentation of lease income between service revenue, rental income and sales-type lease revenue due to modifications to lease contracts.
Income from equity methods investments increased $16 million in the first quarter of 2022 compared to the same period of 2021. This was primarily due to increased throughput on equity method investment pipeline systems, including the Whistler pipeline which was placed into service in the third quarter of 2021.
Cost of revenues decreased $3 million in the first quarter of 2022 compared to the same period of 2021. This was primarily due to modifications to lease contracts which resulted in costs being recorded to purchases - related parties, as noted below, as opposed to rental cost of sales - related parties, which is included in the decrease being explained here. The decrease was partially offset by higher environmental response and remediation costs compared to the first quarter of 2021.
Purchases - related parties increased $24 million in the first quarter of 2022 compared to the same period of 2021. This was primarily due to modifications to lease contracts which resulted in costs now being recorded to purchases - related parties as opposed to rental cost of sales - related parties, which is included in cost of revenues as noted above. This increase, and other miscellaneous increases, were partially offset by decreased employee-related costs from MPC.
Depreciation and amortization decreased $17 million in the first quarter of 2022 compared to the same period of 2021. This was primarily due to the derecognition of fixed assets due to the modification of certain lease contracts and accelerated depreciation on refining logistics assets at MPC’s idled Gallup refinery.
First Quarter G&P Segment Financial Highlights (in millions)
Three Months Ended March 31,
(In millions)
2022
2021
Variance
Service revenue
$
486
$
508
$
(22)
Rental income
81
92
(11)
Product related revenue
661
397
264
Income from equity method investments
47
34
13
Other income/(loss)
(2)
14
(16)
Total segment revenues and other income
1,273
1,045
228
Cost of revenues
198
200
(2)
Purchased product costs
467
276
191
Purchases - related parties
80
83
(3)
Depreciation and amortization
183
182
1
General and administrative expenses
35
40
(5)
Other taxes
13
13
—
Segment income from operations
297
251
46
Depreciation and amortization
183
182
1
Income from equity method investments
(47)
(34)
(13)
Distributions/adjustments related to equity method investments
74
63
11
Other
(9)
4
(13)
Adjusted EBITDA attributable to noncontrolling interests
(9)
(10)
1
Segment Adjusted EBITDA(1)
489
456
33
Capital expenditures
95
30
65
Investments in unconsolidated affiliates
$
42
$
26
$
16
(1) See the Reconciliation of Adjusted EBITDA attributable to MPLX LP and DCF attributable to GP and LP unitholders from Net income table for the reconciliation to the most directly comparable GAAP measure.
Three months ended March 31, 2022 compared to three months ended March 31, 2021
Service revenue decreased $22 million in the first quarter of 2022 compared to the same period of 2021. This was primarily due to lower fees from lower volumes in the Rockies and Marcellus as well as a decrease in volumes due to the Javelina divestiture in the Southwest of $34 million, partially offset by an increase in fees due to a 2021 contract modification in the Marcellus resulting in a change in the presentation of the related income from rental income to service revenue.
Rental income decreased $11 million in the first quarter of 2022 compared to the same period of 2021. This was primarily due to a 2021 contract modification in the Marcellus resulting in a change in the presentation of the related income from rental income to service revenue.
Product related revenue increased $264 million in the first quarter of 2022 compared to the same period of 2021. This was primarily due to higher prices across all regions of approximately $187 million and higher processed volumes in the Southwest of $87 million. This was partially offset by a decrease in volumes primarily due to the Javelina divestiture in the Southwest.
Income from equity method investments increased $13 million in the first quarter of 2022 compared to the same period of 2021, primarily due to higher volumes and rates associated with joint ventures in the Utica, Marcellus and Southwest regions.
Other income/(loss) decreased $16 million in the first quarter of 2022 compared to the same period of 2021 primarily due to a loss on disposal of assets.
Purchased product costs increased $191 million in the first quarter of 2022 compared to the same period of 2021. This was primarily due to higher prices of $143 million in the Southwest and Southern Appalachia and higher volumes in the Southwest.
(1) This column represents operating data for entities that have been consolidated into the MPLX financial statements.
(2) 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.
(3) The Southwest Operations for the three months ended March 31, 2021 include the Javelina complex, which was sold on February 12, 2021. The processing and fractionated volumes calculated for the number of days MPLX owned these assets during 2021 were 96 MMcf/d and 17 mbpd, respectively.
(4) Entities within the Marcellus and Utica Operations jointly own the Hopedale fractionation complex. Hopedale throughput is included in the Marcellus and Utica Operations and represent each region’s utilization of the complex.
(5) Purity ethane makes up approximately 188 mbpd and 199 mbpd of total MPLX Operated, fractionated products for the three months ended March 31, 2022 and 2021, respectively. Purity ethane makes up approximately 184 mbpd and 194 mbpd of total MPLX LP consolidated, fractionated products for the three months ended March 31, 2022 and 2021, respectively.
(6) 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.
Seasonality
The volume of crude oil and refined products transported and stored utilizing our assets is affected by the level of supply and demand for crude oil and refined products in the markets served directly or indirectly by our assets. The majority of 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.
In our G&P segment, we experience minimal impacts from seasonal fluctuations which impact the demand for natural gas and NGLs and the related 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.
Liquidity and Capital Resources
Cash Flows
Our cash and cash equivalents were $42 million at March 31, 2022 and $13 million at December 31, 2021. 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)
2022
2021
Net cash provided by (used in):
Operating activities
$
1,125
$
1,124
Investing activities
(276)
(90)
Financing activities
(820)
(1,025)
Total
$
29
$
9
Net cash provided by operating activities increased $1 million in the first three months of 2022 compared to the first three months of 2021. The increase in net income was offset by working capital requirements.
Net cash used in investing activities increased $186 million in the first three months of 2022 compared to the first three months of 2021, primarily due to an increase in capital spending and an increase in contributions to equity method investments, which included the $60 million contribution to our Bakken Pipeline joint venture to fund our share of a debt repayment by the joint venture. The first quarter of 2021 also included proceeds from the sale of our Javelina plant, which further reduced the use of cash in that period.
Financing activities were an $820 million use of cash in the first three months of 2022 compared to a $1,025 million use of cash in the first three months of 2021. The primary reason for the decrease in the use of cash was due to net debt borrowings of $57 million in the first quarter of 2022 compared to net debt repayments of $110 million in the first quarter of 2021, as well as decreased spending on the unit repurchase program of $55 million in the first quarter of 2022 compared to the first quarter of 2021.
The following table provides a reconciliation of FCF and free cash flow after distributions from net cash provided by operating activities for the three months ended March 31, 2022 and March 31, 2021.
Three Months Ended March 31,
(In millions)
2022
2021
Net cash provided by operating activities
$
1,125
$
1,124
Adjustments to reconcile net cash provided by operating activities to free cash flow
Net cash used in investing activities
(276)
(90)
Contributions from MPC
10
7
Distributions to noncontrolling interests
(9)
(10)
Free cash flow
850
1,031
Distributions paid to common and preferred unitholders
(758)
(754)
Free cash flow after distributions
$
92
$
277
Debt and Liquidity Overview
On March 14, 2022, MPLX issued $1.5 billion aggregate principal amount of 4.950 percent senior notes due March 2052 (the “2052 Senior Notes”) in an underwritten public offering. The 2052 Senior Notes were offered at a price to the public of 98.982 percent with interest payable semi-annually in arrears, commencing on September 14, 2022. The net proceeds were used to repay amounts outstanding under the MPC Intercompany Loan Agreement and the MPLX Credit Agreement.
As of March 31, 2022, we had $20.1 billion in aggregate principal amount of senior notes outstanding. The increase compared to year-end 2021 resulted from the issuance of the 2052 Senior Notes, as discussed above.
Our intention is to maintain an investment-grade credit profile. As of March 31, 2022, the credit ratings on our senior unsecured debt were at or above investment grade level as follows:
Rating Agency
Rating
Moody’s
Baa2 (stable outlook)
Standard & Poor’s
BBB (stable outlook)
Fitch
BBB (stable 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 contains 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 of March 31, 2022, we were in compliance with the covenants, including the financial covenant with a ratio of Consolidated Total Debt to Consolidated EBITDA of 3.64 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.
Our liquidity totaled $4.7 billion at March 31, 2022 consisting of:
March 31, 2022
(In millions)
Total Capacity
Outstanding Borrowings
Available Capacity
MPLX Credit Agreement(1)
$
3,500
$
—
$
3,500
MPC Loan Agreement
1,500
(323)
1,177
Total liquidity
$
5,000
$
(323)
4,677
Cash and cash equivalents
42
Total liquidity
$
4,719
(1) Outstanding borrowings include less than $1 million in letters of credit 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. We may also, from time to time, repurchase our senior notes or preferred units in the open market, in tender offers, in privately negotiated transactions or otherwise in such volumes, at market prices and upon such other terms as we deem appropriate and execute unit repurchases under our unit repurchase program. 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
Common units
The table below summarizes the changes in the number of units outstanding through March 31, 2022:
(In units)
Common
Balance at December 31, 2021
1,016,178,378
Unit-based compensation awards
148,951
Units redeemed in unit repurchase program
(3,119,522)
Balance at March 31, 2022
1,013,207,807
Unit Repurchase Program
During the three months ended March 31, 2022, we repurchased approximately 3 million common units at an average cost per unit of $32.06 per unit and paid $100 million of cash. As of March 31, 2022, we had repurchased a total of approximately 28 million units at an average cost per unit of $27.76 per unit for a total of $763 million under the unit repurchase program. We have $237 million remaining under our repurchase authorization.
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 $266 million per quarter, or $1,064 million per year, based on the number of common units outstanding at March 31, 2022.
On April 26, 2022, MPLX declared a cash distribution for the first quarter of 2022, totaling $713 million, or $0.7050 per common unit. This distribution will be paid on May 13, 2022 to common unitholders of record on May 6, 2022. 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. This rate will also be received by Series A preferred unitholders.
Series B preferred unitholders are entitled to receive a fixed distribution of $68.75 per unit, per annum, payable semi-annually in arrears on February 15 and August 15, or the first business day thereafter, up to and including February 15, 2023. After February 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 on February 15, 2022.
MPLX has the right to redeem some or all of the Series B preferred units, at any time, on or after February 15, 2023. MPLX will pay unitholders the Series B preferred unit redemption price of $1,000 per unit plus any accumulated and unpaid distributions up to the redemption date.
The allocation of total cash distributions is as follows for the three months ended March 31, 2022 and 2021. 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, except per unit data)
2022
2021
Distribution declared:
Limited partner units - public
$
257
$
262
Limited partner units - MPC
456
445
Total LP distribution declared
713
707
Series A preferred units
21
20
Series B preferred units
11
11
Total distribution declared
745
738
Quarterly cash distributions declared per limited partner common unit
$
0.7050
$
0.6875
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 acquisitions or capital improvements that we expect will increase our operating capacity for 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 costs to develop or acquire additional pipeline, terminal, processing or storage capacity. In general, growth capital includes costs that are expected to generate additional or new cash flow for MPLX.
MPLX’s initial capital investment plan for 2022 totaled $900 million which includes growth capital of $700 million, maintenance capital of $140 million and a $60 million investment in unconsolidated affiliates for the repayment of our 9.19 percent indirect share of the Bakken Pipeline joint venture’s debt due in 2022. Growth capital expenditures and investments in affiliates during the three months ended March 31, 2022 were primarily for gas gathering, processing and de-ethanization projects in our Bakken, Marcellus, and Southwest basins and the expansion of our crude gathering systems in the Permian and Bakken basins. Spending for the quarter also included the $60 million contribution to our Bakken Pipeline joint venture to fund our share of a debt repayment by the joint venture. We continuously evaluate our capital plan and make changes as conditions warrant.
Our capital expenditures are shown in the table below:
Three Months Ended March 31,
(In millions)
2022
2021
Capital expenditures:
Growth capital expenditures
$
148
$
71
Investments in unconsolidated affiliates
110
35
Capitalized interest
(2)
(5)
Total growth capital expenditures
256
101
Maintenance capital expenditures
24
18
Maintenance capital reimbursements
(10)
(7)
Total maintenance capital expenditures
14
11
Total growth and maintenance capital expenditures
270
112
Investments in unconsolidated affiliates(1)
(110)
(35)
Growth and maintenance capital reimbursements(2)
10
7
Decrease in capital accruals
(3)
37
Capitalized interest
2
5
Additions to property, plant and equipment, net(1)
$
169
$
126
(1) Investments in unconsolidated affiliates and additions to property, plant and equipment, net are shown as separate lines within investing activities in the Consolidated Statements of Cash Flows.
(2) Growth and maintenance capital reimbursements are included in the Contributions from MPC line within financing activities in the Consolidated Statements of Cash Flows.
Contractual Cash Obligations
As of March 31, 2022, our contractual cash obligations included third-party and related party debt, finance and operating lease obligations, purchase obligations for services and to acquire property, plant and equipment, and other liabilities. During the three months ended March 31, 2022, our third-party long-term debt obligations increased by $1.2 billion, primarily due to the issuance of the $1.5 billion aggregate principal amount of 4.950 percent 2052 Senior Notes, discussed above. A portion of the issuance was used to repay amounts outstanding on the MPLX Credit Agreement. There were no other material changes to our contractual obligations outside the ordinary course of business since December 31, 2021.
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 under U.S. GAAP. Our off-balance sheet arrangements are limited to indemnities and guarantees that are described in Note 14. 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 March 31, 2022, MPC owned our non-economic general partnership interest and held approximately 64 percent of our outstanding common units.
We provide MPC with crude oil and product pipeline and trucking transportation services based on regulated tariff/contracted rates, as well as storage, terminal, fuels distribution, and inland marine transportation services based on contracted rates. We also have agreements with MPC under which we receive fees for operating MPC’s retained pipeline assets, providing management services for the marine business, and operating certain of MPC’s equity method investments. MPC provides us with certain services related to information technology, engineering, legal, accounting, treasury, human resources and other administrative services under employee services and omnibus services agreements.
The below table shows the percentage of “Total revenues and other income” as well as “Total costs and expenses” with MPC:
Three Months Ended March 31,
2022
2021
Total revenues and other income
48
%
51
%
Total costs and expenses
24
%
29
%
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 ended December 31, 2021 and Note 4 of the Notes to the 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.
During the three months ended March 31, 2022, environmental remediation costs increased due to a release of crude oil on our pipeline near Edwardsville, Illinois in March of 2022. There have been no additional changes to our environmental matters and compliance costs since our Annual Report on Form 10-K for the year ended December 31, 2021.
Critical Accounting Estimates
As of March 31, 2022, there have been no significant changes to our critical accounting estimates since our Annual Report on Form 10-K for the year ended December 31, 2021.
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 the Consolidated Financial Statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risks related to the volatility of commodity prices. We employ various strategies, including the potential use of commodity derivative instruments, to economically hedge the risks related to these price fluctuations. We are also exposed to market risks related to changes in interest rates. As of March 31, 2022, we did not have any open financial or commodity derivative instruments to hedge the economic risks related to interest rate fluctuations or the volatility of commodity prices, respectively; however, we continually monitor the market and our exposure and may enter into these arrangements in the future.
Commodity Price Risk
The information about commodity price risk for the three months ended March 31, 2022 does not differ materially from that discussed in Item 7A. Quantitative and Qualitative Disclosures about Market Risk of our Annual Report on Form 10-K for the year ended December 31, 2021.
Outstanding Derivative Contracts
See Notes 9 and 10 to the unaudited consolidated financial statements for more information about the fair value measurement of our natural gas embedded derivative, as well as the amounts recorded in our consolidated balance sheets and statements of income. We do not designate any of our commodity derivative instruments as hedges for accounting purposes.
Sensitivity analysis of the effect of a hypothetical 100-basis-point change in interest rates on third-party outstanding debt, excluding finance leases, is provided in the following table. Fair value of cash and cash equivalents, receivables, accounts payable and accrued interest approximate carrying value and are relatively insensitive to changes in interest rates due to the short-term maturity of the instruments. Accordingly, these instruments are excluded from the table.
(In millions)
Fair Value as of March 31, 2022(1)
Change in Fair Value(2)
Change in Income Before Income Taxes for the Three Months Ended March 31, 2022(3)
Outstanding debt
Fixed-rate
$
20,392
$
1,832
N/A
Variable-rate(4)
$
—
$
—
$
1
(1) Fair value was based on market prices, where available, or current borrowing rates for financings with similar terms and maturities.
(2) Assumes a 100-basis-point decrease in the weighted average yield-to-maturity at March 31, 2022.
(3) Assumes a 100-basis-point change in interest rates. The change to net income was based on the weighted average balance of all outstanding variable-rate debt for the three months ended March 31, 2022.
(4) MPLX had no outstanding borrowings on the MPLX Credit Agreement as of March 31, 2022.
At March 31, 2022, our portfolio of long-term debt consisted of fixed-rate instruments and also provides for borrowings under our revolving credit facility. The fair value of our fixed-rate debt is relatively sensitive to interest rate fluctuations. Our sensitivity to interest rate declines and corresponding increases in the fair value of our debt portfolio unfavorably affects our results of operations and cash flows only when we elect to repurchase or otherwise retire fixed-rate debt at prices above carrying value. Interest rate fluctuations generally do not impact the fair value of borrowings under our MPLX Credit Agreement, but may affect our results of operations and cash flows.
See Note 9 to the unaudited consolidated financial statements for additional information on the fair value of our debt.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) was carried out under the supervision and with the participation of management, including the chief executive officer and chief financial officer of our general partner. Based upon that evaluation, the chief executive officer and chief financial officer of our general partner concluded that the design and operation of these disclosure controls and procedures were effective as of March 31, 2022, the end of the period covered by this report.
Changes in Internal Control Over Financial Reporting
During the quarter ended March 31, 2022, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II – Other Information
Item 1. Legal Proceedings
We are the subject of, or a party to, a number of pending or threatened legal actions, contingencies and commitments involving a variety of matters, including laws and regulations relating to the environment. While it is possible that an adverse result in one or more of the lawsuits or proceedings in which we are a defendant could be material to us, based upon current information and our experience as a defendant in other matters, we believe that these lawsuits and proceedings, individually or in the aggregate, will not have a material adverse effect on our consolidated results of operations, financial position or cash flows.
Item 103 of Regulation S-K promulgated by the SEC requires disclosure of certain environmental matters when a governmental authority is a party to the proceedings and such proceedings involve potential monetary sanctions, unless we reasonably believe that the matter will result in no monetary sanctions, or in monetary sanctions, exclusive of interest and costs, of less than $300,000.
Except as described below, there have been no material changes to the legal matters previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.
41
Edwardsville Incident
In March 2022, the State of Illinois brought an action against Marathon Pipe Line LLC, an indirect wholly owned subsidiary of MPLX LP, asserting various violations and demanding a permanent injunction and civil penalties in connection with a March 2022 release of crude oil on a pipeline near Edwardsville, Illinois. We are negotiating a settlement of the allegations and cannot currently estimate the timing of the resolution of this matter.
Item 1A. Risk Factors
There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table sets forth a summary of our purchases during the quarter ended March 31, 2022, of equity securities that are registered by MPLX pursuant to Section 12 of the Securities Exchange Act of 1934, as amended.
Millions of Dollars
Period
Total Number of Units Purchased
Average Price Paid per Unit(1)
Total Number of Units Purchased as Part of Publicly Announced Plans or Programs
Maximum Dollar Value of Units that May Yet Be Purchased Under the Plans or Programs(2)
1/01/2022-1/31/2022
1,371,325
$
31.36
1,371,325
$
294
2/01/2022-2/28/2022
570,396
32.37
570,396
275
3/01/2022-3/31/2022
1,177,801
32.72
1,177,801
$
237
Total
3,119,522
$
32.06
3,119,522
(1)Amounts in this column reflect the weighted average price paid for units purchased under our unit repurchase authorization. The weighted average price includes commissions paid to brokers during the quarter.
(2)On November 2, 2020, we announced the board authorization of a unit repurchase program for the repurchase of up to $1 billion of MPLX’s common units held by the public. This unit repurchase authorization has no expiration date.
XBRL Instance Document: The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
Pursuant to Item 601(b)(4) of Regulation S-K, certain instruments with respect to long-term debt issues have been omitted where the amount of securities authorized under such instruments does not exceed 10 percent of the total consolidated assets of the Registrant. The Registrant hereby agrees to furnish a copy of any such instrument to the Securities and Exchange Commission upon its request.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MPLX LP
By:
MPLX GP LLC
Its general partner
Date: May 3, 2022
By:
/s/ Kelly D. Wright
Kelly D. Wright
Vice President and Controller of MPLX GP LLC (the general partner of MPLX LP)
