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MPLX Lifted By Increase in Drilling Activity; Sees Growth in 2017

Marathon Petroleum Corp.'s midstream master limited partnership, MPLX LP, turned in another strong quarter, again buoyed by last year’s acquisition of MarkWest Energy Partners LP and a rebound in drilling activity in the Northeast.

Processed volumes from MarkWest in the Northeast and Southwest are expected to grow 15% year/year in 2016. MPLX President Don Templin said that while other basins are in decline, the company expects another 10-15% in processed volumes growth in the Marcellus and Utica next year. The company is currently developing five new processing and fractionation facilities at its Sherwood, Keystone and Majorsville facilities in Pennsylvania and West Virginia.

"I think we're actually getting some very optimistic and positive feedback from our producer customers," Templin said of the Appalachian Basin. "As we think about 2017, I would say there's a lot of optimism around Marcellus and the rich gas. A lot of the growth that we're embedding into our forecast relates to the rich gas Marcellus. There are a number of projects that have been undertaken and are being undertaken to improve the netbacks for our producer customers."

MPLX is in the process of expanding the capacity on existing pipelines, as well as constructing new pipelines as part of a larger build-out of Utica infrastructure, which is targeted for completion in mid-2017. The company has been more focused on moving natural gas liquids (NGL) out of the basin. The Cornerstone Pipeline system, which is designed to move liquids from processing facilities in Harrison County, OH, to MPC's refinery in Canton, recently came online (see Shale Daily, Oct. 4). A decision is also expected soon on the Centennial Pipeline, which would repurpose a refined products line to move NGLs from the Northeast to the Gulf Coast.

Processed gas volumes in the Marcellus and Utica were 4.3 Bcf/d and the company's complexes were 79% utilized during the third quarter. In the Southwest, processed gas volumes were 1.3 Bcf/d and the company's facilities were 84% utilized.

MPC also announced an aggressive dropdown strategy to continue lifting MPLX's value. Next year, MPC plans to offer the partnership assets that could contribute $350 million of annual earnings before interest, taxes, depreciation and amortization (EBITDA), with the first drop expected by the end of the first quarter. Over the next three years, MPC plans to drop assets worth an estimated $1 billion of annual EBITDA to the partnership.

MPLX expects more growth next year, setting a preliminary 2017 budget of $1.2-1.6 billion, excluding maintenance capital. That's up from the $1.1-1.2 billion it plans to spend this year. Next year's budget includes costs associated with the Utica build-out, a butane storage project in Illinois and a tank farm expansion in Texas City, TX, among other things.

The MarkWest assets and increased activity brought revenue up in the third quarter to $703 million from $214 million in the year-ago period. Distributable cash flow was $301 million during the quarter, compared to $52.5 million in the year-ago period. MPLX reported net income of $141 million (22 cents/unit), compared to net income of $41.5 million (41 cents/unit) in 3Q2015.

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