MPLX LP is targeting high-return projects in the Permian Basin-to-Gulf Coast corridor as it continues to streamline 2020 growth capital expenditures (capex) to $1.5 billion, down by another $500 million from the most recent estimate.
During the fourth quarter earnings call last week, President Michael Hennigan said the company would continue to emphasize the growth of its Logistics and Storage (L&S) segment, with growth capital focused on “advancing its strategy of creating integrated crude oil and natural gas logistics systems from the Permian to the U.S. Gulf Coast.”
The master limited partnership of Marathon Petroleum Corp. also continues to plan infrastructure investments on a “just-in-time” basis within its Gathering and Processing (G&P) business to support the evolving growth plans of producer customers. MPLX expects “slowing volume growth” in the Northeast to allow its portfolio of assets in the region to continue to deliver positive cash flow, “which can be deployed to our other strategic investments, especially in the Permian,” Hennigan said.
In 2020, the company expects “significant progress” to be made at major Permian projects, including the Whistler natural gas pipeline. During the fourth quarter, work continued to progress on the 2 Bcf/d capacity project, which Hennigan said is now roughly 95% committed with minimum volume commitments. Startup remains on schedule for the second half of 2021.
The Wink to Webster joint venture Permian crude oil project, in which MPLX has a 15% stake, continues as planned, with 100% of the contractable capacity also committed; startup is on track for early 2021.
Meanwhile, the midstreamer aims to reach a final investment decision on a proposed natural gas liquids pipeline in the Permian “in the near term.” Commercial work on the Belvieu Alternative NGL (aka BANGL) pipeline continues, according to Hennigan. The company expected to sanction the project by now, but management feels “very good that the industrial logic still holds” and the project remains part of its backlog. The 24-inch diameter 500,000 b/d line could enter service in early 2021.
Total pipeline throughput averaged 5.1 million b/d during the fourth quarter, relatively consistent with 4Q2018, according to MPLX. Gathered, processed and fractionated volumes increased year/year, primarily driven by growth in the Marcellus, Utica and Bakken regions.
“There's been a lot of discussion related to the volumes in our G&P business in the Marcellus basin,” Hennigan said. “As you know, these volumes are very dependent on producer activity in the region, making it particularly difficult to forecast as producer plans continue to evolve on a real-time basis.”
For the full year, volumes on MPLX systems in the Marcellus and Utica continued to show significant growth. Gathered volumes increased 18% year/year, processed volumes increased 14% and fractionated volumes increased 12%. MPLX during the quarter placed into service the final two plants, 12 and 13, along with the C2 fractionator at the Sherwood processing complex in West Virginia.
“Despite the challenging macro environment for natural gas, we still expect continued growth in the Northeast,” Hennigan said. “Some of our largest customers are significantly hedged through 2021.”
In addition, many of its largest customers in the Northeast are header producers, “so they're not experiencing the tough macro environment,” he said. “I've always said to everybody to look at these results year/year. Because it's a stair-step business,” and it’s “hard to get a good feel for the business” on a sequential basis.
Nevertheless, management expects a slowdown in 2020 “as the producer customers move in their financial models. But at the same time, we still anticipate some good growth up in that area. We are still very bullish on the area,” Hennigan said.
Greg Floerke, executive vice president of G&P, said the Northeast “is a good story,” with most of MPLX’s assets above 90% utilization. The company is at a point “where we're just incrementally trying to fill in gaps, capacity that we have left” by the customer and plant. “And I think the takeaway residue lines are in a similar situation. So it's a really good spot.”
In addition to the $500 million cut in 2020 capex, MPLX also has cut guided capex for 2021 to around $1 billion.
"We have further streamlined our project portfolio to focus on projects that deliver the highest returns,” Hennigan said. “Our continued efforts to high-grade our capital spending will help accomplish our target of positive free cash flow generation, after capital investments and distributions, in 2021. This inflection is expected to allow both the funding of our distribution and capital program entirely from internally generated cash flow, as well as increase our flexibility to reduce debt or repurchase units.”
MPLX reported fourth quarter net loss of $581 million (68.75 cents/share), compared with a net income of $434 million (64.75 cents) in 4Q2018. Full year 2019 earnings were $1.033 billion ($2.69/share), down from $1.818 billion ($2.53) in 2018.
The L&S segment reported segment income from operations of $677 million for the fourth quarter, up $40 million year/year. The G&P segment reported a segment loss from operations of $1.0 billion, compared to income of $254 million in 4Q2018.
During the quarter, MPLX generated $1.1 billion in net cash, provided by operating activities and $1.0 billion of distributable cash flow.
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