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MPLX 'Encouraged' by Gathering, Processing Growth in Marcellus/Utica

MPLX LP said Thursday they are "very encouraged" by growth in the company’s gathering and processing segment, especially in support of the Marcellus and Utica shales. But the master limited partnership (MLP) again cut capital spending (capex) for 2016 as it delays gathering and processing projects.

Thursday's earnings call to discuss the first quarter came one day after the Findlay, OH-based MLP said it had entered into an agreement for the private placement of $1 billion of newly authorized 6.5% Series A convertible preferred units, at a price of $32.50/unit, with approximately 30.8 million preferred units to be outstanding at the closing of the private placement.

MPLX reported that it had processed a record 4.27 Bcf/d in the Marcellus and Utica shales in 1Q2016, an 8.9% increase over the 3.92 Bcf/d it processed in 4Q2015. It added that facility utilization was continuing to rise, and averaged 81% in 1Q2016, its first complete quarter since the merger with MarkWest Energy Partners LP (see Shale DailyDec. 1, 2015).

"Producer customers are continuing to adapt to market conditions, and we are working closely with them as their plans for gas development evolve," said President Donald Templin, adding that MPLX anticipates Marcellus and Utica processed volumes will increase by approximately 15%, and gathered volumes of rich and dry gas from those plays will increase by about 30%, both over 2015 levels.

"The primary driver of our gathered volume growth is occurring from the highly prospective dry gas areas of the Utica Shale," Templin said. "Along with gathering and processing, we are the largest fractionator in the Marcellus and Utica, handling the majority of liquids production in the region."

MPLX also reported that it had processed an average of 94,000 b/d of ethane in 1Q2016, a 20.5% increase from 4Q2015 (78,000 b/d). Natural gas liquids (NGL) processing volumes for propane, butane and condensate (C3+) averaged 182,000 b/d in 1Q2016, up 4% from 4Q2015 (175,000 b/d).

In March, the MLP delivered its first unit train of propane from its Hopedale complex in Harrison County, OH, to delivery points in the Midcontinent.

"Marcellus [processing] volumes are continuing to grow and we are seeing quarter-over-quarter increases there," said CFO Nancy Buese. "We're also seeing in the Utica a little bit more in terms of the dry gas volume -- those are continuing to go up. We did see a slight decline in process and fractionator volumes there, but it is also relatively small numbers at this point in time."

Templin added that MPLX is "very encouraged by the strength of the business in the Marcellus and the Utica. We are very much tied to what our producer customers are doing, and they manage their portfolios dynamically...We may be seeing a little bit of downward movement [on fractionated and processed volumes], but the gathered volumes have been incredibly strong, and that's actually offset any of the downward movement in the others.

"It's a very dynamic time. We are encouraged by the improving NGL prices."

Gathering and processing also increased in MPLX's operations in the Southwest, from 1.02 Bcf/d in 4Q2015 to 1.05 Bcf/d in 1Q2016, a 2.8% increase. The utilization rate in the region -- which includes East Texas, Western Oklahoma, Southeast Oklahoma and the Gulf Coast -- increased from 79% to 82% between the aforementioned quarters.

MPLX reported adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $302 million for 1Q2016, compared to $64 million in 1Q2015. Buese said the merger with MarkWest accounted for nearly all of the increase, with higher tariffs and pipeline throughput volumes accounting for the rest.

Buese said MPLX's capex budget for 2016 would range from $800 million to $1.2 billion, with a midpoint range of about $650 million. During the Q&A part of the call, she said the MLP would "absolutely" push back the timing for some gathering and processing projects, with in-service dates now into 2017.

"We can wait longer to bring projects online," Buese said. "You'll see that through the increased utilization, or maximizing all of the capacity at our existing facilities. We won't be bringing on new capacity until it's needed."

CEO Gary Heminger added that the MLP's 50-mile Cornerstone Pipeline system, which will transport NGLs from the Utica, is expected to be in-service by the end of 2016 (see Shale DailyApril 6). He added that the pipeline's original sole purpose was to move condensate for its parent company, Marathon Petroleum Corp. (MPC), from the Marcellus and Utica to MPC's refinery in Canton, OH.

"As we were thinking about the project, it became clear to us that we could provide an industry solution that makes a lot of sense, so we expanded the size of the pipeline," Heminger said of Cornerstone. "Over time, we expect there will be third-party volumes, but in the early phases of the operation, we expect that it's predominantly to move condensate on behalf of MPC to the refinery."

On Wednesday, the MLP said the convertible preferred units are generally convertible into MPLX common units on a one-for-one basis after three years, at the purchaser's option, and after four years at MPLX's option, subject to certain conditions. Net proceeds from the units, after subtracting offering and transaction expenses, are expected to be about $984 million. The transaction is expected to close in May.

"There is interest in MPLX equity, and we had no problem raising those dollars," Buese said. "The equity yield has moved around quite a bit in the course of the quarter, and we like the optionality to lock in a rate...it also gives us the ability to take our financing needs for the balance of the year off the table."

Adjusted net income for the full year is expected to range from $325-485 million, and adjusted EBITDA is expected to range $1.25-1.4 billion.

Last February, MPLX reduced its projected capex budget for 2016 to a range of $1-1.5 billion and lowered its expected distribution growth rate (see Shale DailyFeb. 5). Both moves were made in response to the commodity price downturn.

MPLX reported distributable cash flow totaled $236 million in 1Q2016, compared to $57 million in 1Q2015 before the merger. The MLP also declared a distribution of 50.5 cents/common unit for 1Q2016, a 23.2% increase over the 41 cents distributed in 1Q2015. The latest earnings include a non-cash charge of $129 million to impair a small portion of the goodwill recorded in connection with the MarkWest merger.

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