MPLX LP (NYSE:MPLX) Q4 2022 Earnings Call Transcript January 31, 2023
Operator: Welcome to the MPLX Fourth Quarter 2022 Earnings Call. My name is Sheila, and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. . Please note that this conference is being recorded. I will now turn the call over to Kristina Kazarian. Kristina, you may begin.
Kristina Kazarian: Good morning, and welcome to the MPLX fourth quarter 2022 earnings conference call. The slides that accompany this call can be found on our Web site at mplx.com, under the Investor tab. Joining me on the call today are Mike Hennigan, Chairman and CEO; John Quaid, CFO; and other members of the executive team. We invite you to read the Safe Harbor statements and non-GAAP disclaimer on Slide 2. It’s a reminder that we will be making forward-looking statements during the call and during the question-and-answer session that follows. Actual results may differ materially from what we expect today. Factors that could cause actual results to differ are included there as well as in our filings with the SEC. And with that, I’ll turn the call over to Mike.
Mike Hennigan: Thanks, Kristina. Good morning. Thank you for joining our call. First off, I want to recognize a new Director on the MPLX Board. In November, Christy Breves, who recently served as CFO for U.S. Steel, was appointed as a new Independent Director. 2022 was a strong year as we successfully executed on all of our strategic priorities. Full year adjusted EBITDA was $5.8 billion and DCF was $5 billion. Strong operational performance and customer demand drove record annual pipeline throughputs and increasing Gathering and Processing and fractionation throughputs with each quarter of the year. We also realized EBITDA growth from recent capital investments and remain focused on cost management. Overall, our efforts resulted in a 4% year-over-year adjusted EBITDA and DCF growth.
In line with our commitment to return capital, for the full year, MPLX returned over $3.5 billion of capital back to unitholders through our distribution and unit repurchases. We also made progress towards our goal of leading in sustainable energy through our methane reduction program and with the receipt of EPA’s ENERGY STAR award for energy efficiency improvements at several terminals. Today, we announced our capital expenditure outlook for 2023 of $950 million. Our plan includes approximately $800 million of growth capital and $150 million of maintenance capital. Our growth capital plan is anchored in the Marcellus, Permian and Bakken basins. In addition to new gas processing plants in the Marcellus and Permian, the remainder of our capital plan is mostly focused on other investments targeted at expansion or debottlenecking of existing assets to meet customer demand.
While our capital outlook is primarily focused on our current L&S and G&P footprint, we will continue to evaluate low carbon opportunities where we can leverage technologies that are complementary with our asset footprint and expertise. Moving to our capital allocation framework. First, maintenance capital. We remain steadfast in our commitment to safely operate our assets, protect the health and safety of our employees, and support the communities in which we operate. Second, we remain focused on delivering a secure distribution. Third, after these commitments are met, we will invest to grow while maintaining strict capital discipline. And fourth, we also intend to return excess capital to unitholders. As I’ve said in the past, we believe this is both a return on and a return of capital business.
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Last November, based on the strength and growth of our cash flows, we increased our distribution by 10% to an annual rate of $3.10 per unit, while maintaining a strong distribution coverage ratio of 1.6x. In 2023, we would expect to be similarly focused on our distribution as our primary tool to return capital to unitholders. We are optimistic about our opportunities in 2023 and remain focused on executing the strategic priorities of strict capital discipline, fostering a low cost culture, optimizing our asset portfolio, which are foundational to the growth of MPLX’s cash flows. Now let me turn the call over to John to discuss our operational and financial results for the quarter.
John Quaid: Thanks, Mike. Slide 6 outlines the fourth quarter operational and financial performance highlights for our Logistics and Storage segment. L&S segment adjusted EBITDA increased $45 million when compared to fourth quarter 2021. The increased results were primarily driven by higher pipeline tariffs and contributions from pipeline equity affiliates, partially offset by higher maintenance project-related expenses in the quarter. Pipeline volumes were flat year-over-year, primarily due to the impacts associated with Marathon’s refinery turnarounds in both quarters. Terminal volumes were up 4%. Moving to our Gathering and Processing segment on Slide 7, G&P segment adjusted EBITDA decreased $36 million compared to fourth quarter 2021, as the benefits of higher volumes were more than offset by lower natural gas liquids prices, which averaged $0.78 per gallon for the quarter as compared to $1.05 in the fourth quarter of 2021.
In total for the quarter, gathered volumes were up 14% year-over-year due to increased production in the Utica and our Southwest region, which includes our Permian operations. Processing volumes were up 1% year-over-year, primarily from higher volumes in the Southwest, driven by increased customer demand and our investments in processing capacity in the Permian. In the Marcellus, while Gathering and Processing volumes were slightly lower year-over-year, we did see sequential increases for gathering, processing and fractionation volumes in the basin. These activity levels were in line with our expectations for increased producer activity in the back half of the year. Moving to our fourth quarter financial highlights on Slide 8, total adjusted EBITDA of $1.5 billion was roughly flat versus the same period in the prior year, while distributable cash flow of $1.3 billion increased 5%.
Results in the quarter were impacted by $23 million special compensation award provided to our employees in recognition of their efforts. We do not anticipate that this expense will structurally impact future costs. In the fourth quarter, we returned $975 million to unitholders through approximately $800 million in distributions and $175 million of repurchases of common units held by the public. MPLX ended the year with nearly $850 million remaining available under its unit repurchase authorizations. Last week, MPLX declared a fourth quarter distribution of 0.775 per unit, resulting in a distribution coverage ratio of 1.6x for the fourth quarter. MPLX ended the year with total debt of around $20 billion and a debt to EBITDA ratio of 3.5x, comfortably below our target of approximately 4x.
While our absolute level of debt has remained relatively constant, our leverage has decreased due to the growth in our business. And at these leverage levels, we do not see the need to reduce our absolute level of debt. Earlier today, we announced our intent to redeem the par value, the $600 million of outstanding Series B preferred units in mid February. Subject to market conditions, we expect to refinance these preferred units into long-term debt. In closing, we expect our solid operating performance and growth of our cash flows will enable us to continue to invest in and grow the business while also supporting the return of capital to MPLX unitholders. Now let me turn the call back over to Kristina.
Kristina Kazarian: Thanks, John. As we open the call for questions, we ask that you limit yourself to one question plus a follow up. We may re-prompt for additional questions as time permits. With that, Sheila, we’re ready for questions today.
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