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 transportation, storage and distribution of crude oil and refined petroleum 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 and refined petroleum products; and Gathering and Processing (“G&P”), which relates primarily to natural gas and NGLs. See Note
9
for additional information regarding the operations and results of these segments.
On July 30, 2019, MPLX completed its acquisition by merger (the “Merger”) of Andeavor Logistics LP (“ANDX”). At the effective time of the Merger, each common unit held by ANDX’s public unitholders was converted into the right to receive
1.135
MPLX common units. ANDX common units held by certain affiliates of MPC were converted into the right to receive
1.0328
MPLX common units. See Note
3
for additional information regarding the Merger.
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 amounts in prior years have been reclassified to conform to current year presentation.
These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended
December 31, 2018
. The results of operations for the
three and six
months ended
June 30, 2019
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 a VIE in which MPLX exercises significant influence but does not control and is not the primary beneficiary are also accounted for using the equity method.
In preparing the Consolidated Statements of Equity, net income attributable to MPLX LP is allocated to Series A preferred unitholders based on a fixed distribution schedule. Distributions, although earned, are not accrued until declared. The allocation of net income attributable to MPLX LP for purposes of calculating net income per limited partner unit is described in Note
6
.
2
. Accounting Standards
Recently Adopted
ASU 2016-02, Leases
We adopted ASU No. 2016-02, Leases (Topic 842), as of January 1, 2019, electing the transition method which permits entities to adopt the provisions of the standard using the modified retrospective approach without adjusting comparative periods. We also elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to grandfather the historical accounting conclusions until a reassessment event is present. We have also elected the practical expedient to not recognize short-term leases on the balance sheet, the practical expedient related to right of way permits and land easements which allows us to carry forward our accounting treatment for those existing agreements, and the practical expedient to combine lease and non-lease components for the majority of our underlying classes of assets except for our third-party contractor service and equipment agreements and boat and barge equipment agreements in which we are the lessee. We did not elect the practical expedient to combine lease and non-lease components for arrangements in which we are
the lessor. In instances where the practical expedient was not elected, lease and non-lease consideration is allocated based on relative standalone selling price.
Right of use (“ROU”) assets represent our right to use an underlying asset in which we obtain substantially all of the economic benefits and the right to direct the use of the asset during the lease term. Lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. We recognize ROU assets and lease liabilities on the balance sheet for leases with a lease term of greater than one year. Payments that are not fixed at the commencement of the lease are considered variable and are excluded from the ROU asset and lease liability calculations. In the measurement of our ROU assets and lease liabilities, the fixed lease payments in the agreement are discounted using a secured incremental borrowing rate for a term similar to the duration of the lease, as our leases do not provide implicit rates. Operating lease expense is recognized on a straight-line basis over the lease term.
Adoption of the new standard resulted in the recording of ROU assets and lease liabilities of approximately
$505 million
and
$502 million
, respectively, as of January 1, 2019. The standard did not materially impact our consolidated statements of income, cash flows or equity as a result of adoption.
As a lessor under ASC 842, MPLX may be required to re-classify existing operating leases to sales-type leases upon modification and related reassessment of the leases. If such a modification were to occur, it may result in the de-recognition of existing assets and recognition of a receivable in the amount of the present value of fixed payments expected to be received by MPLX under the lease. MPLX will evaluate the impacts of lease reassessments as modifications occur.
We also adopted the following standard during the first six months of
2019
, which did not have a material impact to our financial statements or financial statement disclosures:
|
|
|
|
ASU
|
|
Effective Date
|
2017-12
|
Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities
|
January 1, 2019
|
Not Yet Adopted
ASU 2017-04, Intangibles - Goodwill and Other - Simplifying the Test for Goodwill Impairment
In January 2017, the FASB issued an ASU which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the new guidance, the recognition of an impairment charge is calculated based on the amount by which the carrying amount exceeds the reporting unit’s fair value, which could be different from the amount calculated under the current method using the implied fair value of the goodwill; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The guidance should be applied on a prospective basis, and is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.
ASU 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued an ASU related to the accounting for credit losses on certain financial instruments. The guidance requires that for most financial assets, losses be based on an expected loss approach which includes estimates of losses over the life of exposure that considers historical, current and forecasted information. Expanded disclosures related to the methods used to estimate the losses as well as a specific disaggregation of balances for financial assets are also required. The change is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. We do not expect application of this ASU to have a material impact on our consolidated financial statements.
3
. Acquisitions
Acquisition of Andeavor Logistics LP
As previously disclosed, on May 7, 2019, ANDX, Tesoro Logistics GP, LLC, then the general partner of ANDX (“TLGP”), MPLX, MPLX GP LLC, the general partner of MPLX (“MPLX GP”), and MPLX MAX LLC, a wholly-owned subsidiary of MPLX (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) that provided for, among other things, the merger of Merger Sub with and into ANDX. On July 30, 2019, the Merger was completed, and ANDX survived the Merger as a wholly-owned subsidiary of MPLX. At the effective time of the Merger, each common unit held by
ANDX’s public unitholders was converted into the right to receive
1.135
MPLX common units. ANDX common units held by certain affiliates of MPC were converted into the right to receive
1.0328
MPLX common units.
The assets of ANDX consist of a network of owned and operated crude oil, refined product and natural gas pipelines; terminals with crude oil and refined products storage capacity; rail loading and offloading facilities; marine terminals including storage; bulk petroleum distribution facilities; a trucking fleet; and natural gas processing and fractionation complexes. The assets are located in the western and inland regions of the United States.
MPC accounted for its October 1, 2018 acquisition of Andeavor (including acquiring control of ANDX), using the acquisition method of accounting which required Andeavor assets and liabilities to be recorded by MPC at the acquisition date fair value. As a result of MPC’s relationship with both MPLX and ANDX, the Merger will be treated as a common control transaction, which requires the recognition of assets and liabilities acquired using MPC’s historical basis as of October 1, 2018. The fair value of assets acquired and liabilities assumed shown below have been pushed down from MPC and are considered preliminary as MPC has not yet completed a final determination of the respective fair values related to its acquisition of Andeavor. The preliminary purchase consideration allocation may change based on additional information received. Adjustments to this allocation can be made through the end of MPC’s measurement period, which is not to exceed one year from the Andeavor acquisition date. Values shown below have not been incorporated into the results of MPLX as of June 30, 2019 as the Merger was not closed until July 30, 2019.
|
|
|
|
|
(In millions)
|
|
Cash and cash equivalents
|
$
|
83
|
|
Receivables, net
|
241
|
|
Inventories
|
21
|
|
Other current assets
(1)
|
59
|
|
Equity method investments
|
731
|
|
Property, plant and equipment, net
|
6,709
|
|
Intangibles, net
|
960
|
|
Other noncurrent assets
(2)
|
31
|
|
Total assets acquired
|
8,835
|
|
Accounts payable
|
198
|
|
Other current liabilities
(3)
|
188
|
|
Long-term debt
|
4,916
|
|
Deferred credits and other long-term liabilities
(4)
|
75
|
|
Total liabilities assumed
|
5,377
|
|
Net assets acquired excluding goodwill
|
3,458
|
|
Goodwill
|
7,428
|
|
Total purchase price
|
$
|
10,886
|
|
(1)
Includes both related party and third party other current assets.
(2) Includes both related party and third party other noncurrent assets as well as right of use assets associated with leases.
(3) Includes accrued liabilities, operating lease liabilities, long term debt due within one year, as well as related party and third party other current liabilities.
(4) Includes deferred revenue and deferred income taxes, as well as related party and third party other noncurrent liabilities.
Details of our valuation methodology and significant inputs for fair value measurements are included by asset class below. The fair value measurements for equity method investments, property, plant and equipment, intangible assets and long-term debt are based on significant inputs that are not observable in the market and, therefore, represent Level 3 measurements.
Goodwill
The preliminary purchase consideration allocation resulted in the recognition of
$7 billion
in goodwill which will be split between the L&S and G&P segments once assigned to the relevant reporting units.
Inventory
The fair value of inventory was recorded at cost as of October 1, 2018 as these items are related to spare parts, materials and supplies and approximate fair value.
Equity Method Investments
The fair value of the equity method investments was determined based on applying income and market approaches. The income approach relied on the discounted cash flow method and the market approach relied on a market multiple approach considering historical and projected financial results. Discount rates for the discounted cash flow models were based on capital structures for similar market participants and included various risk premiums that account for risks associated with the specific investments.
Property, Plant and Equipment
The preliminary fair value of property, plant and equipment is
$7 billion
, which is based primarily on the cost approach. Key assumptions in the cost approach include determining the replacement cost by evaluating recent purchases of similar assets or published data, and adjusting replacement cost for economic and functional obsolescence, location, normal useful lives, and capacity (if applicable).
Acquired Intangible Assets
The preliminary fair value of the acquired identifiable intangible assets is
$960 million
, which represents the value of various customer contracts and relationships and other intangible assets. The preliminary fair value of customer contracts and relationships is
$890 million
, which was valued by applying the multi-period excess earnings method, which is an income approach. Key assumptions in the income approach include the underlying contract cash flow estimates, remaining contract term, probability of renewal, growth rates and discount rates. The intangible assets are all finite lived and will be amortized over
2
to
10
years.
Debt
The fair value of the ANDX unsecured notes was measured using a market approach, based upon the average of quotes for the acquired debt from major financial institutions and a third-party valuation service. Additionally, approximately
$1.1 billion
of borrowings under revolving credit agreements approximate fair value.
Acquisition Costs
We recognized
$4 million
in acquisition costs during the period which are reflected in general and administrative expenses.
Pro Forma Financial Information
The following unaudited pro forma information combines the historical operations of MPLX and ANDX, giving effect to the merger as if it had been consummated on January 1, 2018, the beginning of the earliest period presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(In millions)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Total revenues and other income
|
$
|
2,224
|
|
|
$
|
2,122
|
|
|
$
|
4,461
|
|
|
$
|
4,059
|
|
Net income attributable to MPLX LP
|
$
|
652
|
|
|
$
|
600
|
|
|
$
|
1,324
|
|
|
$
|
1,161
|
|
The pro forma information includes adjustments to align accounting policies which include adjustments for capitalization of assets and treatment of turnaround and major maintenance costs. The pro forma information also includes adjustments related to: reversing transactions between MPLX and ANDX which previously would have been recorded as transactions between related parties; basis differences on equity method investments as a result of recognition of MPC’s investments in ANDX’s equity method investments; depreciation and amortization expense to reflect the increased fair value of property, plant and equipment and increased amortization expense related to identifiable intangible assets; as well as adjustments to interest expense for the amortization of fair value adjustments over the remaining term of ANDX’s outstanding debt, reversal of ANDX’s historical amortization of debt issuance costs and debt discounts and to adjust for the difference in the weighted average interest rate between MPLX’s revolving credit facility and the ANDX revolving credit facilities.
Mt. Airy Terminal
On September 26, 2018, MPLX acquired an eastern U.S. Gulf Coast export terminal (the “Mt. Airy Terminal”) from Pin Oak Holdings, LLC for total consideration of
$451 million
. At the time of the acquisition, the terminal included tanks with
4 million
barrels of third-party leased storage capacity and a dock with
120
mbpd of capacity. The Mt. Airy Terminal is located on the Mississippi River between New Orleans and Baton Rouge, is in close proximity to several Gulf Coast refineries including MPC’s Garyville Refinery and is near numerous rail lines and pipelines. The Mt. Airy Terminal is accounted for within the L&S segment. In the first quarter of 2019, an adjustment to the initial purchase price was made for approximately
$5 million
related to the final settlement of the acquisition, which was paid in the first six months of 2019 as shown on the statement of cash flow. This reduced the total purchase price to
$446 million
and resulted in
$336 million
of property, plant and equipment,
$121 million
of goodwill and the remainder being attributable to net liabilities assumed.
Goodwill represents the significant growth potential of the terminal due to the multiple pipelines and rail lines which cross the property, the terminal’s position as an aggregation point for liquids growth in the region for both ocean-going vessels and inland barges, the proximity of the terminal to MPC’s Garyville refinery and other refineries in the region as well as the opportunity to construct an additional dock at the site.
Refining Logistics and Fuels Distribution Acquisition
On
February 1, 2018
, MPC and MPLX closed on an agreement for the dropdown of refining logistics assets and fuels distribution services to MPLX. MPC contributed these assets and services in exchange for
$4.1 billion
in cash and a fixed number of MPLX common units and general partner units of
111,611,111
and
2,277,778
, respectively. The fair value of the common and general partner units issued as of the acquisition date was
$4.3 billion
based on the closing common unit price as of
February 1, 2018
, as recorded on the Consolidated Statements of Equity, for a total purchase price of
$8.4 billion
. The equity issued consisted of: (i)
85,610,278
common units to MPLX GP, (ii)
18,176,666
common units to MPLX Logistics Holdings LLC and (iii)
7,824,167
common units to MPLX Holdings Inc. MPLX also issued
2,277,778
general partner units to MPLX GP in order to maintain its
two
percent general partner interest (“GP Interest”) in MPLX. MPC agreed to waive approximately one-third of the first quarter 2018 distributions on the common units issued in connection with this transaction. As a result of this waiver, MPC did not receive
$23.7 million
of the distributions that would have otherwise accrued on such common units with respect to the first quarter of 2018. Immediately following this transaction, the GP Interest was converted into a non-economic general partner interest.
MPLX recorded this transaction on a historical basis as required for transactions between entities under common control. No effect was given to the prior periods as these entities were not considered businesses prior to the
February 1, 2018
dropdown. In connection with the dropdown, approximately
$830 million
of net property, plant and equipment was recorded in addition to
$85 million
and
$130 million
of goodwill allocated to MPLX Refining Logistics LLC (“Refining Logistics”) and MPLX Fuels Distribution LLC (“Fuels Distribution”), respectively. Both the refining logistics assets and the fuels distribution services are accounted for within the L&S segment.
As of the transaction date, the Refining Logistics assets included
619
tanks with approximately
56 million
barrels of storage capacity (crude, finished products and intermediates),
32
rail and truck racks,
18
docks, and gasoline blenders. These assets generate revenue through storage services agreements with MPC. Refining Logistics provides certain services to MPC related to the receipt, storage, throughput, custody and delivery of petroleum products in and through certain storage and logistical facilities and assets associated with MPC’s refineries.
Fuels Distribution, which is a wholly-owned subsidiary of MPLXT, generates revenue through a fuels distribution services agreement with MPC. Fuels Distribution is structured to provide a broad range of scheduling and marketing services as MPC’s agent.
4
. Investments and Noncontrolling Interests
The following table presents MPLX’s equity method investments at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
Ownership as of
|
|
Carrying value at
|
|
June 30,
|
|
June 30,
|
|
December 31,
|
(In millions, except ownership percentages)
|
2019
|
|
2019
|
|
2018
|
Explorer Pipeline Company
|
25%
|
|
$
|
83
|
|
|
$
|
90
|
|
Illinois Extension Pipeline Company, L.L.C.
|
35%
|
|
278
|
|
|
275
|
|
LOCAP LLC
|
59%
|
|
27
|
|
|
27
|
|
LOOP LLC
|
41%
|
|
234
|
|
|
226
|
|
MarEn Bakken Company LLC
|
25%
|
|
487
|
|
|
498
|
|
Centrahoma Processing LLC
|
40%
|
|
155
|
|
|
160
|
|
MarkWest EMG Jefferson Dry Gas Gathering Company, L.L.C.
|
67%
|
|
269
|
|
|
236
|
|
MarkWest Utica EMG, L.L.C.
|
56%
|
|
2,026
|
|
|
2,039
|
|
Sherwood Midstream LLC
|
50%
|
|
491
|
|
|
366
|
|
Sherwood Midstream Holdings LLC
|
56%
|
|
162
|
|
|
157
|
|
Other
|
|
|
197
|
|
|
100
|
|
Total
|
|
|
$
|
4,409
|
|
|
$
|
4,174
|
|
Summarized financial information for MPLX’s equity method investments for the
six
months ended
June 30, 2019
and
2018
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
(In millions)
|
VIEs
|
|
Non-VIEs
(2)
|
|
Total
|
Revenues and other income
|
$
|
282
|
|
|
$
|
608
|
|
|
$
|
890
|
|
Costs and expenses
|
146
|
|
|
236
|
|
|
382
|
|
Income from operations
|
136
|
|
|
372
|
|
|
508
|
|
Net income
|
117
|
|
|
339
|
|
|
456
|
|
Income from equity method investments
(1)
|
$
|
48
|
|
|
$
|
95
|
|
|
$
|
143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
(In millions)
|
VIEs
|
|
Non-VIEs
|
|
Total
|
Revenues and other income
|
$
|
209
|
|
|
$
|
589
|
|
|
$
|
798
|
|
Costs and expenses
|
127
|
|
|
305
|
|
|
432
|
|
Income from operations
|
82
|
|
|
284
|
|
|
366
|
|
Net income
|
81
|
|
|
256
|
|
|
337
|
|
Income from equity method investments
(1)
|
$
|
26
|
|
|
$
|
85
|
|
|
$
|
111
|
|
|
|
(1)
|
“
Income from equity method investments
” includes the impact of any basis differential amortization or accretion.
|
|
|
(2)
|
Includes three months of activity related to Johnson County Terminal, we sold our investment in this joint venture on April 1, 2019.
|
Summarized balance sheet information for MPLX’s equity method investments as of
June 30, 2019
and
December 31, 2018
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
(In millions)
|
VIEs
|
|
Non-VIEs
|
|
Total
|
Current assets
|
$
|
200
|
|
|
$
|
357
|
|
|
$
|
557
|
|
Noncurrent assets
|
4,597
|
|
|
4,656
|
|
|
9,253
|
|
Current liabilities
|
163
|
|
|
225
|
|
|
388
|
|
Noncurrent liabilities
|
$
|
233
|
|
|
$
|
845
|
|
|
$
|
1,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
(In millions)
|
VIEs
|
|
Non-VIEs
|
|
Total
|
Current assets
|
$
|
235
|
|
|
$
|
379
|
|
|
$
|
614
|
|
Noncurrent assets
|
3,535
|
|
|
4,715
|
|
|
8,250
|
|
Current liabilities
|
155
|
|
|
246
|
|
|
401
|
|
Noncurrent liabilities
|
$
|
189
|
|
|
$
|
841
|
|
|
$
|
1,030
|
|
As of
June 30, 2019
and
December 31, 2018
, the carrying value of MPLX’s equity method investments exceeded the underlying net assets of its investees by approximately
$1 billion
for the G&P segment. As of
June 30, 2019
and
December 31, 2018
, the carrying value of MPLX’s equity method investments in the L&S segment exceeded the underlying net assets of its investees by
$113 million
and
$114 million
, respectively. This basis difference is being amortized into net income over the remaining estimated useful lives of the underlying assets, except for
$459 million
and
$39 million
of excess related to goodwill for the G&P and L&S segments, respectively.
MarkWest Utica EMG
MarkWest Utica EMG, L.L.C. (“MarkWest Utica EMG”) is deemed to be a VIE. Neither MPLX nor any of its subsidiaries is deemed to be the primary beneficiary due to EMG Utica, L.L.C.’s voting rights on significant matters. MPLX’s maximum exposure to loss as a result of its involvement with MarkWest Utica EMG 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. MarkWest Utica EMG holds an investment in its subsidiary, Ohio Gathering Company, L.L.C. (“Ohio Gathering”), which does not appear elsewhere in the tables above. The investment was
$788 million
and
$750 million
as of
June 30, 2019
and
December 31, 2018
, respectively. MPLX did not provide any financial support to MarkWest Utica EMG that it was not contractually obligated to provide during the
six
months ended
June 30, 2019
.
Ohio Gathering
Ohio Gathering is a subsidiary of MarkWest Utica EMG and is engaged in providing natural gas gathering services in the Utica Shale in eastern Ohio. Ohio Gathering is a joint venture between MarkWest Utica EMG and Summit Midstream Partners, LLC. As of
June 30, 2019
, MPLX has an approximate
34 percent
indirect ownership interest in Ohio Gathering. As Ohio Gathering is a subsidiary of MarkWest Utica EMG, which is accounted for as an equity method investment, MPLX reports its portion of Ohio Gathering’s net assets as a component of its investment in MarkWest Utica EMG.
Sherwood Midstream
Sherwood Midstream LLC (“Sherwood Midstream”) is deemed to be a VIE. Neither MPLX nor any of its subsidiaries is deemed to be the primary beneficiary of Sherwood Midstream due to Antero Midstream Partners, LP’s voting rights on significant matters. MPLX’s maximum exposure to loss as a result of its involvement with Sherwood Midstream 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 Sherwood Midstream that it was not contractually obligated to provide during the
six
months ended
June 30, 2019
.
Sherwood Midstream also has an investment in MarkWest Ohio Fractionation Company, L.L.C. (“Ohio Fractionation”), which is a VIE, that it accounts for as an equity method investment as Sherwood Midstream does not control Ohio Fractionation. During the three months ended March 31, 2019, Sherwood Midstream acquired the right to fractionation revenue and the obligation to pay expenses related to
20
mbpd of capacity in the Hopedale 4 fractionator; this transaction is shown as “Contributions from noncontrolling interests” on the Consolidated Statements of Cash Flows. MarkWest Liberty Midstream & Resources, L.L.C (“MarkWest Liberty Midstream”), a wholly-owned and consolidated subsidiary, has been deemed to be the primary beneficiary of Ohio Fractionation because it has control over the decisions that could significantly impact its financial performance, and as a result, consolidates Ohio Fractionation. The creditors of Ohio Fractionation do not have recourse to MPLX LP’s general credit through guarantees or other financial arrangements. The assets of Ohio Fractionation are the property of Ohio Fractionation and cannot be used to satisfy the obligations of MPLX LP. Sherwood Midstream’s interests are reflected in “Net income attributable to noncontrolling interests” on the Consolidated Statements of Income and “Noncontrolling interests” on the Consolidated Balance Sheets.
Sherwood Midstream Holdings
MPLX accounts for Sherwood Midstream Holdings LLC (“Sherwood Midstream Holdings”), which is a VIE, as an equity method investment as Sherwood Midstream is considered to be the general partner and controls all decisions. During the three months ended March 31, 2018, MarkWest Liberty Midstream sold to Sherwood Midstream
six percent
of its equity ownership in Sherwood Midstream Holdings for
$15 million
. MPLX’s maximum exposure to loss as a result of its involvement with Sherwood Midstream Holdings 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 Sherwood Midstream Holdings that it was not contractually obligated to provide during the
six
months ended
June 30, 2019
.
Sherwood Midstream has been deemed the primary beneficiary of 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
June 30, 2019
, MPLX has a
22.2 percent
indirect ownership interest in Sherwood Midstream Holdings through Sherwood Midstream.
5
. Related Party Agreements and Transactions
As of
June 30, 2019
, MPLX’s material related parties are:
|
|
•
|
MPC, which refines, markets and transports crude oil and petroleum products.
|
|
|
•
|
MarkWest Utica EMG, in which MPLX LP has a
56 percent
interest as of
June 30, 2019
. MarkWest Utica EMG is engaged in natural gas processing and NGL fractionation, transportation and marketing in Ohio.
|
|
|
•
|
Ohio Gathering, in which MPLX LP has a
34 percent
indirect interest as of
June 30, 2019
. Ohio Gathering is a subsidiary of MarkWest Utica EMG providing natural gas gathering service in the Utica Shale region of eastern Ohio.
|
|
|
•
|
Sherwood Midstream, in which MPLX LP has a
50 percent
interest as of
June 30, 2019
. Sherwood Midstream supports the development of Antero Resources Corporation’s Marcellus Shale acreage in the rich-gas corridor of West Virginia.
|
|
|
•
|
Sherwood Midstream Holdings, in which MPLX LP has a
78 percent
total direct and indirect interest as of
June 30, 2019
. Sherwood Midstream Holdings owns certain infrastructure at the Sherwood Complex that is shared by and supports the operation of both the Sherwood Midstream and MarkWest gas processing plants and de-ethanization facilities.
|
|
|
•
|
MarkWest EMG Jefferson Dry Gas Gathering Company, L.L.C. (“Jefferson Dry Gas”), in which MPLX LP has a
67 percent
interest as of
June 30, 2019
. Jefferson Dry Gas provides natural dry gas gathering and related services in the Utica Shale region of Ohio.
|
Related Party Agreements
MPLX has various long-term, fee-based commercial agreements with MPC. Under these agreements, MPLX provides transportation, terminal, fuels distribution, marketing, storage, management, operational and other services to MPC. MPC has committed to provide MPLX with minimum throughput volumes on crude oil and refined products systems; fees for storage capacity; a fixed fee for substantially all available capacity for boats and barges under the marine transportation services agreement; operating and management fees; as well as reimbursements for certain direct and indirect costs. In addition, MPLX has obligations to MPC for services provided to MPLX by MPC under omnibus and employee services agreements as well as other various agreements.
MPLX is also party to a loan agreement with MPC Investment LLC (“MPC Investment”) (the “MPC Loan Agreement”). Under the terms of the MPC Loan Agreement, MPC Investment makes a loan or loans to MPLX on a revolving basis as requested by MPLX and as agreed to by MPC Investment. On April 27, 2018, MPLX and MPC Investment entered into an amendment to the MPC Loan Agreement to increase the borrowing capacity under the MPC Loan Agreement from
$500 million
to
$1 billion
in aggregate principal amount of all loans outstanding at any one time. The entire unpaid principal amount of the loan, together with all accrued and unpaid interest and other amounts (if any), shall become due and payable on
December 4, 2020
. 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
December 4, 2020
. Borrowings under the loan will bear interest at
LIBOR plus 1.50 percent
. Activity on the MPC Loan Agreement was as follows:
|
|
|
|
|
|
|
|
|
(In millions)
|
Six Months Ended June 30, 2019
|
|
Year Ended December 31, 2018
|
Borrowings
|
$
|
3,066
|
|
|
$
|
3,962
|
|
Average interest rate of borrowings
|
3.845
|
%
|
|
3.473
|
%
|
Repayments
|
$
|
3,022
|
|
|
$
|
4,347
|
|
Outstanding balance at end of period
(1)
|
$
|
44
|
|
|
$
|
—
|
|
(1) Included in “Current liabilities - related parties” on the Consolidated Balance Sheets.
Related Party Revenue
Related party sales to MPC consist of crude oil and refined products pipeline transportation services based on tariff 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.
Revenue received from related parties included on the Consolidated Statements of Income was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(In millions)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Service revenues - related parties
|
|
|
|
|
|
|
|
MPC
|
$
|
620
|
|
|
$
|
549
|
|
|
$
|
1,198
|
|
|
$
|
1,020
|
|
Rental income - related parties
|
|
|
|
|
|
|
|
MPC
|
158
|
|
|
190
|
|
|
351
|
|
|
335
|
|
Product sales - related parties
(1)
|
|
|
|
|
|
|
|
MPC
|
14
|
|
|
13
|
|
|
25
|
|
|
17
|
|
Other income - related parties
|
|
|
|
|
|
|
|
MPC
|
10
|
|
|
10
|
|
|
20
|
|
|
20
|
|
MarkWest Utica EMG
|
4
|
|
|
4
|
|
|
8
|
|
|
8
|
|
Ohio Gathering
|
5
|
|
|
4
|
|
|
9
|
|
|
8
|
|
Sherwood Midstream
|
3
|
|
|
2
|
|
|
7
|
|
|
5
|
|
Jefferson Dry Gas
|
1
|
|
|
2
|
|
|
3
|
|
|
3
|
|
Other
|
4
|
|
|
2
|
|
|
6
|
|
|
3
|
|
Total Other income - related parties
|
$
|
27
|
|
|
$
|
24
|
|
|
$
|
53
|
|
|
$
|
47
|
|
(1) There were additional product sales to MPC that 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 and six
months ended
June 30, 2019
, these sales totaled
$118 million
and
$204 million
, respectively. For the
three and six
months ended
June 30, 2018
, these sales totaled
$112 million
and
$191 million
, respectively.
Related Party Expenses
MPC provides executive management services and certain general and administrative services to MPLX under the terms of an omnibus agreement (“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. 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 LP 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 rent and lease agreements with MPC.
Expenses incurred from MPC under the omnibus and employee services agreements as well as other purchases from MPC included on the Consolidated Statements of Income are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(In millions)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Rental cost of sales - related parties
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
1
|
|
Purchases - related parties
|
239
|
|
|
223
|
|
|
451
|
|
|
400
|
|
General and administrative expenses
|
43
|
|
|
44
|
|
|
93
|
|
|
83
|
|
Total
|
$
|
284
|
|
|
$
|
267
|
|
|
$
|
549
|
|
|
$
|
484
|
|
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 and six
months ended
June 30, 2019
, these charges totaled
$38 million
and
$79 million
, respectively. For the
three and six
months ended
June 30, 2018
, these charges totaled
$41 million
and
$63 million
, respectively.
Related Party Assets and Liabilities
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 (see Note
19
for additional information) and deferred revenue on minimum volume commitments. During the
six
months ended
June 30, 2019
and the year ended
December 31, 2018
, MPC did not ship its minimum committed volumes on certain pipelines. Under MPLX’s pipeline transportation services agreements, if MPC fails to transport its minimum throughput volumes during any quarter, then MPC will pay MPLX a deficiency payment equal to the volume of the deficiency multiplied by the tariff rate then in effect. The deficiency amounts are recorded as “Current liabilities - related parties.” MPC may then apply the amount of any such deficiency payments as a credit for volumes transported on the applicable pipeline in excess of its minimum volume commitment in future periods under the terms of the applicable transportation services agreement. MPLX recognizes related party revenues for the deficiency payments when credits are used for volumes transported 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.” In addition, capital projects MPLX is undertaking at the request of MPC are reimbursed in cash and recognized in income over the remaining term of the applicable agreements.
|
|
|
|
|
|
|
|
|
(In millions)
|
June 30, 2019
|
|
December 31, 2018
|
Current assets - related parties
|
|
|
|
Receivables - MPC
|
$
|
318
|
|
|
$
|
281
|
|
Receivables - Other
|
10
|
|
|
8
|
|
Prepaid - MPC
|
5
|
|
|
1
|
|
Total
|
333
|
|
|
290
|
|
Noncurrent assets - related parties
|
|
|
|
Long-term receivables - MPC
|
21
|
|
|
24
|
|
Right of use assets - MPC
|
232
|
|
|
—
|
|
Total
|
253
|
|
|
24
|
|
Current liabilities - related parties
|
|
|
|
Payables - MPC
|
157
|
|
|
131
|
|
Payables - MarkWest Utica EMG
|
10
|
|
|
51
|
|
Payables - Sherwood Midstream
|
17
|
|
|
16
|
|
Payables - Other
|
—
|
|
|
5
|
|
Operating lease liabilities - MPC
|
1
|
|
|
—
|
|
Deferred revenue - Minimum volume deficiencies - MPC
|
31
|
|
|
44
|
|
Deferred revenue - Project reimbursements - MPC
|
8
|
|
|
7
|
|
Total
|
224
|
|
|
254
|
|
Long-term liabilities - related parties
|
|
|
|
Long-term operating lease liabilities - MPC
|
231
|
|
|
—
|
|
Long-term deferred revenue - Project reimbursements - MPC
|
40
|
|
|
43
|
|
Total
|
$
|
271
|
|
|
$
|
43
|
|
Other Related Party Transactions
From time to time, MPLX may also sell to or purchase from related parties, assets and inventory at the lesser of average unit cost or net realizable value. Sales to related parties for the
six
months ended
June 30, 2019
and
2018
were less than
$1 million
and
$3 million
, respectively. Purchases from related parties for the
six
months ended
June 30, 2019
and
2018
were less than
$1 million
and
$1 million
, respectively.
6
. Net Income/(Loss) Per Limited Partner Unit
Net income/(loss) per unit applicable to common units is computed by dividing net income/(loss) attributable to MPLX LP less income/(loss) allocated to participating securities by the weighted average number of common units outstanding. Additional MPLX common units and MPLX Series B preferred units were issued on July 30, 2019 as a result of the merger with ANDX as discussed in Note 3. Distributions declared on these newly-issued common and Series B preferred units are a reduction to income available to MPLX common unit holders due to their participation in distributions of second quarter income. The classes of participating securities include common units, certain equity-based compensation awards, Series A preferred units and Series B preferred units for the three and six months ended June 30, 2019 and common units, certain equity-based compensation awards and Series A preferred units for the three and six months ended June 30, 2018.
For the
three and six
months ended
June 30, 2019
and
2018
, MPLX 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 and six
months ended
June 30, 2019
and
2018
were less than
1 million
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(In millions)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Net income attributable to MPLX LP
|
$
|
482
|
|
|
$
|
453
|
|
|
$
|
985
|
|
|
$
|
874
|
|
Less: Distributions declared on Series A preferred units
(1)
|
21
|
|
|
20
|
|
|
41
|
|
|
36
|
|
Distributions declared on Series B preferred units
(1)
|
21
|
|
|
—
|
|
|
21
|
|
|
—
|
|
Limited partners’ distributions declared on MPLX common units (including common units of general partner)
(1)(2)
|
692
|
|
|
497
|
|
|
1,215
|
|
|
964
|
|
Undistributed net loss attributable to MPLX LP
|
$
|
(252
|
)
|
|
$
|
(64
|
)
|
|
$
|
(292
|
)
|
|
$
|
(126
|
)
|
(1) See Note
7
for distribution information.
(2) The three and six months ended June 30, 2019 amounts are net of
$12.5 million
of waived distributions with respect to units held by MPC and its affiliates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
(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
|
$
|
692
|
|
|
$
|
21
|
|
|
$
|
21
|
|
|
$
|
734
|
|
Undistributed net loss attributable to MPLX LP
|
(252
|
)
|
|
—
|
|
|
—
|
|
|
(252
|
)
|
Net income attributable to MPLX LP
(1)
|
$
|
440
|
|
|
$
|
21
|
|
|
$
|
21
|
|
|
$
|
482
|
|
Weighted average units outstanding:
|
|
|
|
|
|
|
|
Basic
(2)
|
794
|
|
|
31
|
|
|
|
|
825
|
|
Diluted
(2)
|
795
|
|
|
31
|
|
|
|
|
826
|
|
Net income attributable to MPLX LP per limited partner unit:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.56
|
|
|
|
|
|
|
|
Diluted
|
$
|
0.55
|
|
|
|
|
|
|
|
(1) Allocation of net income attributable to MPLX LP assumes all earnings for the period had been distributed based on the current period distribution priorities.
(2) The Series B preferred units and the MPLX common units issued in connection with the merger were not outstanding during the three months ended June 30, 2019. See Notes
3
and
7
for additional information about the treatment of these units.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
(In millions, except per unit data)
|
Limited Partners’
Common Units
|
|
Series A Preferred Units
|
|
Total
|
Basic and diluted net income attributable to MPLX LP per unit
|
|
|
|
|
|
Net income attributable to MPLX LP:
|
|
|
|
|
|
Distributions declared
|
$
|
497
|
|
|
$
|
20
|
|
|
$
|
517
|
|
Undistributed net loss attributable to MPLX LP
|
(64
|
)
|
|
—
|
|
|
(64
|
)
|
Net income attributable to MPLX LP
(1)
|
$
|
433
|
|
|
$
|
20
|
|
|
$
|
453
|
|
Weighted average units outstanding:
|
|
|
|
|
|
Basic
|
794
|
|
|
31
|
|
|
825
|
|
Diluted
|
794
|
|
|
31
|
|
|
825
|
|
Net income attributable to MPLX LP per limited partner unit:
|
|
|
|
|
|
Basic
|
$
|
0.55
|
|
|
|
|
|
|
Diluted
|
$
|
0.55
|
|
|
|
|
|
|
(1) Allocation of net income attributable to MPLX LP assumes all earnings for the period had been distributed based on the current period distribution priorities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
(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
|
$
|
1,215
|
|
|
$
|
41
|
|
|
$
|
21
|
|
|
$
|
1,277
|
|
Undistributed net loss attributable to MPLX LP
|
(292
|
)
|
|
—
|
|
|
—
|
|
|
(292
|
)
|
Net income attributable to MPLX LP
(1)
|
$
|
923
|
|
|
$
|
41
|
|
|
$
|
21
|
|
|
$
|
985
|
|
Weighted average units outstanding:
|
|
|
|
|
|
|
|
Basic
(2)
|
794
|
|
|
31
|
|
|
|
|
|
825
|
|
Diluted
(2)
|
795
|
|
|
31
|
|
|
|
|
|
826
|
|
Net income attributable to MPLX LP per limited partner unit:
|
|
|
|
|
|
|
|
Basic
|
$
|
1.16
|
|
|
|
|
|
|
|
Diluted
|
$
|
1.16
|
|
|
|
|
|
|
|
(1) Allocation of net income attributable to MPLX LP assumes all earnings for the period had been distributed based on the current period distribution priorities.
(2) The Series B preferred units and the MPLX common units issued in connection with the merger were not outstanding during the six months ended June 30, 2019. See Notes
3
and
7
for additional information about the treatment of these units.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
(In millions, except per unit data)
|
Limited Partners’ Common Units
|
|
Series A Preferred Units
|
|
Total
|
Basic and diluted net income attributable to MPLX LP per unit:
|
|
|
|
|
|
Net income attributable to MPLX LP:
|
|
|
|
|
|
Distributions declared
|
$
|
964
|
|
|
$
|
36
|
|
|
$
|
1,000
|
|
Undistributed net loss attributable to MPLX LP
|
(126
|
)
|
|
—
|
|
|
(126
|
)
|
Net income attributable to MPLX LP
(1)
|
$
|
838
|
|
|
$
|
36
|
|
|
$
|
874
|
|
Weighted average units outstanding:
|
|
|
|
|
|
Basic
|
728
|
|
|
31
|
|
|
759
|
|
Diluted
|
728
|
|
|
31
|
|
|
759
|
|
Net income attributable to MPLX LP per limited partner unit:
|
|
|
|
|
|
Basic
|
$
|
1.15
|
|
|
|
|
|
Diluted
|
$
|
1.15
|
|
|
|
|
|
(1) Allocation of net income attributable to MPLX LP assumes all earnings for the period had been distributed based on the current period distribution priorities.
7
. Equity
The changes in the number of common units outstanding during the
six
months ended
June 30, 2019
are summarized below:
|
|
|
|
(In units)
|
Common
|
Balance at December 31, 2018
|
794,089,518
|
|
Unit-based compensation awards
|
260,101
|
|
Balance at June 30, 2019
|
794,349,619
|
|
Cash distributions
–
In accordance with the MPLX partnership agreement, on
July 22, 2019
, MPLX declared a quarterly cash distribution, based on the results of the
second
quarter of
2019
, totaling
$692 million
, or
$0.6675
per common unit, which
includes common units issued on July 30, 2019 as a result of the Merger. This rate will also be received by Series A preferred unitholders. These distributions will be paid on
August 14, 2019
to common unitholders of record on
August 5, 2019
.
Additionally, as a result of the Merger,
600,000
ANDX preferred units were converted into
600,000
preferred units of MPLX (the “Series B preferred units”). Series B preferred unitholders are entitled to receive, when and if declared by the board, a fixed distribution of
$68.75
per unit, per annum, payable semi-annually in arrears on February 15 and August 15. Accordingly a cash distribution payment totaling
$21 million
will be paid to Series B unitholders on August 15, 2019.
Quarterly distributions for
2019
and
2018
are summarized below:
|
|
|
|
|
|
|
|
|
(Per common unit)
|
2019
|
|
2018
|
March 31,
|
$
|
0.6575
|
|
|
$
|
0.6175
|
|
June 30,
|
$
|
0.6675
|
|
|
$
|
0.6275
|
|
The allocation of total quarterly cash distributions to limited and preferred unitholders is as follows for the
three and six
months ended
June 30, 2019
and
2018
. 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, except for the Series B preferred unit distributions which were earned throughout 2019, prior to the merger being completed.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(In millions)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Common and preferred unit distributions:
|
|
|
|
|
|
|
|
Common unitholders, includes common units of general partner
|
$
|
692
|
|
|
$
|
497
|
|
|
$
|
1,215
|
|
|
$
|
964
|
|
Series A preferred unit distributions
|
21
|
|
|
20
|
|
|
41
|
|
|
36
|
|
Series B preferred unit distributions
|
21
|
|
|
—
|
|
|
21
|
|
|
—
|
|
Total cash distributions declared
|
$
|
734
|
|
|
$
|
517
|
|
|
$
|
1,277
|
|
|
$
|
1,000
|
|
The distribution on common units for the three and six months ended June 30, 2019 includes the impact of the issuance of approximately
102 million
units issued to public unitholders and approximately
161 million
units issued to MPC in connection with MPLX's acquisition of ANDX on July 30, 2019. Had the transaction been completed subsequent to our distribution record date, distributions would have been
$163 million
lower for the three and six months ended June 30, 2019. This is net of
$12.5 million
of waived distributions with respect to units held by MPC and its affiliates. The
$12.5 million
quarterly distribution waiver will continue through 2019. Total distributions excluding the newly issued common units associated with the merger and the Series B preferred units were
$550 million
and
$1,093
for the three and six months ended June 30, 2019.
8
. Redeemable Series A Preferred Units
Private Placement of Series A Preferred Units
–
On May 13, 2016, MPLX LP completed the private placement of approximately
30.8 million
6.5 percent
Series A Convertible preferred units for a cash purchase price of
$32.50
per unit. The aggregate net proceeds of approximately
$984 million
from the sale of the preferred units were used for capital expenditures, repayment of debt and general business purposes. The Series A preferred units rank senior to all common units and pari passu with all Series B preferred units with respect to distributions and rights upon liquidation. The holders of the Series A preferred units received cumulative quarterly distributions equal to
$0.528125
per unit for each quarter prior to the second quarter of 2018. Beginning with the second quarter of 2018, the holders of the Series A preferred units are entitled to receive, when and if declared by the board, a quarterly distribution equal to the greater of
$0.528125
per unit or the amount of distributions they would have received on an as converted basis. On
July 22, 2019
, MPLX declared a quarterly cash distribution of
$0.6675
per common unit representing the distribution of income earned during the
second
quarter of
2019
. The Series A preferred units will receive the common unit rate in lieu of the lower
$0.528125
base amount.
The changes in the redeemable preferred balance from
December 31, 2018
through
June 30, 2019
are summarized below:
|
|
|
|
|
(In millions)
|
Redeemable Preferred Units
|
Balance at December 31, 2018
|
$
|
1,004
|
|
Net income allocated
|
41
|
|
Distributions received by Series A preferred unitholders
|
(40
|
)
|
Balance at June 30, 2019
|
$
|
1,005
|
|
The holders may convert their Series A preferred units into common units at any time after the third anniversary of the issuance date or prior to liquidation, dissolution or winding up of the Partnership, in full or in part, subject to minimum conversion amounts and conditions. After the fourth anniversary of the issuance date, MPLX may convert the Series A preferred units into common units at any time, in whole or in part, subject to certain minimum conversion amounts and conditions, if the closing price of MPLX LP common units is greater than $48.75 for the 20-day trading period immediately preceding the conversion notice date. The conversion rate for the Series A preferred units shall be the quotient of (a) the sum of (i) $32.50, plus (ii) any unpaid cash distributions on the applicable preferred unit, divided by (b) $32.50, subject to adjustment for unit distributions, unit splits and similar transactions. The holders of the Series A preferred units are entitled to vote on an as-converted basis with the common unitholders and have certain other class voting rights with respect to any amendment to the MPLX partnership agreement that would adversely affect any rights, preferences or privileges of the preferred units. In addition, upon certain events involving a change of control, the holders of preferred units may elect, among other potential elections, to convert their Series A preferred units to common units at the then change of control conversion rate.
The Series A preferred units are considered redeemable securities under GAAP due to the existence of redemption provisions upon a deemed liquidation event which is outside MPLX’s control. Therefore, they are presented as temporary equity in the mezzanine section of the Consolidated Balance Sheets. The Series A preferred units have been recorded at their issuance date fair value, net of issuance costs. Income allocations increase the carrying value and declared distributions decrease the carrying value of the Series A preferred units. As the Series A preferred units are not currently redeemable and not probable of becoming redeemable, adjustment to the initial carrying amount is not necessary and would only be required if it becomes probable that the Series A preferred units would become redeemable.
9
. Segment Information
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, stores, distributes and markets crude oil and refined petroleum products.
|
|
|
•
|
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) provision/(benefit) for income taxes; (iii) amortization of deferred financing costs; (iv) extinguishment of debt; (v) non-cash equity-based compensation; (vi) impairment expense; (vii) net interest and other financial costs; (viii) income/(loss) from equity method investments; (ix) distributions and adjustments related to equity method investments; (x) unrealized derivative gains/(losses); (xi) acquisition costs; (xii) noncontrolling interest; and (xiii) 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, capital expenditures and total assets for our reportable segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(In millions)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
L&S
|
|
|
|
|
|
|
|
Service revenue
|
$
|
653
|
|
|
$
|
581
|
|
|
$
|
1,265
|
|
|
$
|
1,080
|
|
Rental income
|
164
|
|
|
190
|
|
|
363
|
|
|
335
|
|
Product related revenue
|
4
|
|
|
3
|
|
|
7
|
|
|
5
|
|
Income from equity method investments
|
47
|
|
|
36
|
|
|
88
|
|
|
80
|
|
Other income
|
17
|
|
|
12
|
|
|
28
|
|
|
24
|
|
Total segment revenues and other income
(1)
|
885
|
|
|
822
|
|
|
1,751
|
|
|
1,524
|
|
Segment Adjusted EBITDA
(2)
|
569
|
|
|
526
|
|
|
1,128
|
|
|
963
|
|
Maintenance capital expenditures
|
19
|
|
|
25
|
|
|
32
|
|
|
47
|
|
Growth capital expenditures
|
115
|
|
|
93
|
|
|
218
|
|
|
247
|
|
G&P
|
|
|
|
|
|
|
|
Service revenue
|
415
|
|
|
378
|
|
|
819
|
|
|
732
|
|
Rental income
|
84
|
|
|
84
|
|
|
172
|
|
|
163
|
|
Product related revenue
|
204
|
|
|
267
|
|
|
448
|
|
|
520
|
|
Income from equity method investments
|
26
|
|
|
14
|
|
|
55
|
|
|
31
|
|
Other income
|
15
|
|
|
13
|
|
|
30
|
|
|
28
|
|
Total segment revenues and other income
(1)
|
744
|
|
|
756
|
|
|
1,524
|
|
|
1,474
|
|
Segment Adjusted EBITDA
(2)
|
351
|
|
|
341
|
|
|
722
|
|
|
664
|
|
Maintenance capital expenditures
|
15
|
|
|
8
|
|
|
21
|
|
|
11
|
|
Growth capital expenditures
|
$
|
268
|
|
|
$
|
406
|
|
|
$
|
529
|
|
|
$
|
677
|
|
(1) Within the total segment revenues and other income amounts presented above, third party revenues for the L&S segment were
$94 million
and
$176 million
for the
three and six
months ended
June 30, 2019
, respectively, and
$71 million
and
$145 million
for the
three and six
months ended
June 30, 2018
, respectively. Third party revenues for the G&P segment were
$716 million
and
$1,472 million
for the
three and six
months ended
June 30, 2019
, respectively, and
$731 million
and
$1,434 million
for the
three and six
months ended
June 30, 2018
, respectively.
(2) See below for the reconciliation from Segment Adjusted EBITDA to “Net income.”
|
|
|
|
|
|
|
|
|
(In millions)
|
June 30, 2019
|
|
December 31, 2018
|
Segment assets
|
|
|
|
Cash and cash equivalents
|
$
|
7
|
|
|
$
|
68
|
|
L&S
(1)
|
7,083
|
|
|
6,566
|
|
G&P
(1)
|
16,656
|
|
|
16,145
|
|
Total assets
|
$
|
23,746
|
|
|
$
|
22,779
|
|
(1) Equity method investments included in L&S assets were
$1.17 billion
at
June 30, 2019
and
$1.12 billion
at
December 31, 2018
. Equity method investments included in G&P assets were
$3.24 billion
at
June 30, 2019
and
$3.05 billion
at
December 31, 2018
.
The table below provides a reconciliation between “Net income” and Segment Adjusted EBITDA.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(In millions)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Reconciliation to Net income:
|
|
|
|
|
|
|
|
L&S Segment Adjusted EBITDA
|
$
|
569
|
|
|
$
|
526
|
|
|
$
|
1,128
|
|
|
$
|
963
|
|
G&P Segment Adjusted EBITDA
|
351
|
|
|
341
|
|
|
722
|
|
|
664
|
|
Total reportable segments
|
920
|
|
|
867
|
|
|
1,850
|
|
|
1,627
|
|
Depreciation and amortization
(1)
|
(214
|
)
|
|
(188
|
)
|
|
(425
|
)
|
|
(364
|
)
|
(Provision)/benefit for income taxes
|
(1
|
)
|
|
(1
|
)
|
|
1
|
|
|
(5
|
)
|
Amortization of deferred financing costs
|
(13
|
)
|
|
(15
|
)
|
|
(26
|
)
|
|
(31
|
)
|
Non-cash equity-based compensation
|
(3
|
)
|
|
(5
|
)
|
|
(9
|
)
|
|
(9
|
)
|
Net interest and other financial costs
|
(157
|
)
|
|
(136
|
)
|
|
(315
|
)
|
|
(250
|
)
|
Income from equity method investments
|
73
|
|
|
50
|
|
|
143
|
|
|
111
|
|
Distributions/adjustments related to equity method investments
|
(120
|
)
|
|
(112
|
)
|
|
(228
|
)
|
|
(202
|
)
|
Unrealized derivative losses
(2)
|
—
|
|
|
(8
|
)
|
|
(4
|
)
|
|
(1
|
)
|
Acquisition costs
|
(4
|
)
|
|
—
|
|
|
(4
|
)
|
|
(3
|
)
|
Adjusted EBITDA attributable to noncontrolling interests
|
7
|
|
|
4
|
|
|
14
|
|
|
6
|
|
Net income
|
$
|
488
|
|
|
$
|
456
|
|
|
$
|
997
|
|
|
$
|
879
|
|
(1) Depreciation and amortization attributable to L&S was
$70 million
and
$140 million
for the
three and six
months ended
June 30, 2019
, respectively, and
$61 million
and
$109 million
for the
three and six
months ended
June 30, 2018
, respectively. Depreciation and amortization attributable to G&P was
$144 million
and
$285 million
for the
three and six
months ended
June 30, 2019
, respectively, and
$127 million
and
$255 million
for the
three and six
months ended
June 30, 2018
, respectively.
(2) MPLX makes a distinction between realized and 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.
10
. Inventories
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
(In millions)
|
June 30, 2019
|
|
December 31, 2018
|
NGLs
|
$
|
5
|
|
|
$
|
9
|
|
Line fill
|
7
|
|
|
9
|
|
Spare parts, materials and supplies
|
65
|
|
|
59
|
|
Total inventories
|
$
|
77
|
|
|
$
|
77
|
|
11
. Property, Plant and Equipment
Property, plant and equipment with associated accumulated depreciation is shown below:
|
|
|
|
|
|
|
|
|
(In millions)
|
June 30, 2019
|
|
December 31, 2018
|
Natural gas gathering and NGL transportation pipelines and facilities
|
$
|
6,211
|
|
|
$
|
5,926
|
|
Processing, fractionation and storage facilities
|
5,365
|
|
|
5,336
|
|
Pipelines and related assets
|
2,630
|
|
|
2,560
|
|
Barges and towing vessels
|
657
|
|
|
620
|
|
Terminals and related assets
|
1,185
|
|
|
1,178
|
|
Refinery related assets
|
949
|
|
|
938
|
|
Land, building, office equipment and other
|
1,005
|
|
|
957
|
|
Construction-in-progress
|
1,084
|
|
|
801
|
|
Total
|
19,086
|
|
|
18,316
|
|
Less accumulated depreciation
|
4,065
|
|
|
3,677
|
|
Property, plant and equipment, net
|
$
|
15,021
|
|
|
$
|
14,639
|
|
12
. Fair Value Measurements
Fair Values – Recurring
Fair value measurements and disclosures relate primarily to MPLX’s derivative positions as discussed in Note
13
. The following table presents the financial instruments carried at fair value on a recurring basis as of
June 30, 2019
and
December 31, 2018
by fair value hierarchy level. MPLX has elected to offset the fair value amounts recognized for multiple derivative contracts executed with the same counterparty.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
(In millions)
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
Significant unobservable inputs (Level 3)
|
|
|
|
|
|
|
|
Embedded derivatives in commodity contracts
|
$
|
—
|
|
|
$
|
(65
|
)
|
|
$
|
—
|
|
|
$
|
(61
|
)
|
Total carrying value on Consolidated Balance Sheets
|
$
|
—
|
|
|
$
|
(65
|
)
|
|
$
|
—
|
|
|
$
|
(61
|
)
|
Level 3 instruments include all NGL transactions and embedded derivatives in commodity contracts. The embedded derivative liability relates to 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
$0.46
to
$1.14
and (2) the probability of renewal of
92 percent
for the first five-year term and
82 percent
for the second five-year 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. An increase in the probability of renewal would result in an increase in the fair value of the related embedded derivative liability. Beyond the embedded derivative discussed above, we had no outstanding commodity contracts as of
June 30, 2019
or
December 31, 2018
.
Changes in Level 3 Fair Value Measurements
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 June 30, 2019
|
|
Three Months Ended June 30, 2018
|
(In millions)
|
Commodity Derivative Contracts (net)
|
|
Embedded Derivatives in Commodity Contracts (net)
|
|
Commodity Derivative Contracts (net)
|
|
Embedded Derivatives in Commodity Contracts (net)
|
Fair value at beginning of period
|
$
|
—
|
|
|
$
|
(65
|
)
|
|
$
|
(2
|
)
|
|
$
|
(58
|
)
|
Total losses (realized and unrealized) included in earnings
(1)
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
|
(11
|
)
|
Settlements
|
—
|
|
|
1
|
|
|
1
|
|
|
3
|
|
Fair value at end of period
|
—
|
|
|
(65
|
)
|
|
(2
|
)
|
|
(66
|
)
|
The amount of total losses for the period included in earnings attributable to the change in unrealized losses relating to liabilities still held at end of period
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
$
|
(1
|
)
|
|
$
|
(10
|
)
|
(1) Gains and losses on commodity derivative contracts classified as Level 3 are recorded in “Product sales”
on the Consolidated Statements of Income. Gains and losses on derivatives embedded in commodity contracts are recorded in “Purchased product costs” and “Cost of revenues” on the Consolidated Statements of Income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
Six Months Ended June 30, 2018
|
(In millions)
|
Commodity Derivative Contracts (net)
|
|
Embedded Derivatives in Commodity Contracts (net)
|
|
Commodity Derivative Contracts (net)
|
|
Embedded Derivatives in Commodity Contracts (net)
|
Fair value at beginning of period
|
$
|
—
|
|
|
$
|
(61
|
)
|
|
$
|
(2
|
)
|
|
$
|
(64
|
)
|
Total losses (realized and unrealized) included in earnings
(1)
|
—
|
|
|
(7
|
)
|
|
(1
|
)
|
|
(8
|
)
|
Settlements
|
—
|
|
|
3
|
|
|
1
|
|
|
6
|
|
Fair value at end of period
|
—
|
|
|
(65
|
)
|
|
(2
|
)
|
|
(66
|
)
|
The amount of total losses for the period included in earnings attributable to the change in unrealized losses relating to liabilities still held at end of period
|
$
|
—
|
|
|
$
|
(5
|
)
|
|
$
|
—
|
|
|
$
|
(5
|
)
|
(1) Gains and losses on commodity derivative contracts classified as Level 3 are recorded in “Product sales”
on the Consolidated Statements of Income. Gains and losses on derivatives embedded in commodity contracts are recorded in “Purchased product costs” and “Cost of revenues” on the Consolidated Statements of Income.
Fair Values – Reported
MPLX’s primary financial instruments are cash and cash equivalents, receivables, receivables from related parties, accounts payable, payables to related parties and long-term 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 approximates current market rates. Derivative instruments are recorded at fair value, based on available market information (see Note
13
).
The fair value of MPLX’s long-term debt is estimated based on recent market non-binding indicative quotes. The fair value of the SMR liability is estimated using a discounted cash flow approach based on the contractual cash flows and MPLX’s unsecured borrowing rate. The long-term debt and SMR liability fair values are considered Level 3 measurements. The following table summarizes the fair value and carrying value of the long-term debt, excluding finance leases, and SMR liability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
(In millions)
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
Long-term debt
|
$
|
15,282
|
|
|
$
|
14,123
|
|
|
$
|
13,169
|
|
|
$
|
13,484
|
|
SMR liability
|
$
|
94
|
|
|
$
|
83
|
|
|
$
|
92
|
|
|
$
|
86
|
|
13
. Derivative Financial Instruments
As of
June 30, 2019
, MPLX had no outstanding 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 2022. The customer has the unilateral option to extend the agreement for
two
consecutive five-year terms through December 2032. For accounting purposes, the natural gas purchase commitment and the term extending options have been aggregated into a single compound embedded derivative. The probability of the customer exercising its options 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. As of
June 30, 2019
and
December 31, 2018
, the estimated fair value of this contract was
a liability
of $
65 million
and $
61 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
June 30, 2019
and
December 31, 2018
, 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)
|
June 30, 2019
|
|
December 31, 2018
|
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
|
$
|
—
|
|
|
$
|
(7
|
)
|
|
$
|
—
|
|
|
$
|
(7
|
)
|
Other noncurrent assets / Deferred credits and other liabilities
|
—
|
|
|
(58
|
)
|
|
—
|
|
|
(54
|
)
|
Total
|
$
|
—
|
|
|
$
|
(65
|
)
|
|
$
|
—
|
|
|
$
|
(61
|
)
|
(1) Includes embedded derivatives in commodity contracts as discussed above.
For further information regarding the fair value measurement of derivative instruments, including the effect of master netting arrangements or collateral, see Note
12
. There were no material changes to MPLX’s policy regarding the accounting for Level 2 and Level 3 instruments as previously disclosed in MPLX’s Annual Report on Form 10-K for the year ended
December 31, 2018
. MPLX does not designate any of its commodity derivative positions as hedges for accounting purposes.
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 June 30,
|
|
Six Months Ended June 30,
|
(In millions)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Product sales
|
|
|
|
|
|
|
|
Realized (loss)/gain
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
Unrealized (loss)/gain
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Product sales derivative (loss)/gain
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
Purchased product costs
|
|
|
|
|
|
|
|
Realized (loss)/gain
|
(1
|
)
|
|
(3
|
)
|
|
(3
|
)
|
|
(6
|
)
|
Unrealized (loss)/gain
|
—
|
|
|
(8
|
)
|
|
(4
|
)
|
|
(2
|
)
|
Purchased product costs derivative (loss)/gain
|
(1
|
)
|
|
(11
|
)
|
|
(7
|
)
|
|
(8
|
)
|
Cost of revenues
|
|
|
|
|
|
|
|
Realized (loss)/gain
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Unrealized (loss)/gain
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Cost of revenues derivative (loss)/gain
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total derivative (loss)/gain
|
$
|
(1
|
)
|
|
$
|
(12
|
)
|
|
$
|
(7
|
)
|
|
$
|
(8
|
)
|
14
. Debt
MPLX’s outstanding borrowings consist of the following:
|
|
|
|
|
|
|
|
|
(In millions)
|
June 30, 2019
|
|
December 31, 2018
|
MPLX LP:
|
|
|
|
Bank revolving credit facility due 2022
|
$
|
615
|
|
|
$
|
—
|
|
3.375% senior notes due March 2023
|
500
|
|
|
500
|
|
4.500% senior notes due July 2023
|
989
|
|
|
989
|
|
4.875% senior notes due December 2024
|
1,149
|
|
|
1,149
|
|
4.000% senior notes due February 2025
|
500
|
|
|
500
|
|
4.875% senior notes due June 2025
|
1,189
|
|
|
1,189
|
|
4.125% senior notes due March 2027
|
1,250
|
|
|
1,250
|
|
4.000% senior notes due March 2028
|
1,250
|
|
|
1,250
|
|
4.800% senior notes due February 2029
|
750
|
|
|
750
|
|
4.500% senior notes due April 2038
|
1,750
|
|
|
1,750
|
|
5.200% senior notes due March 2047
|
1,000
|
|
|
1,000
|
|
4.700% senior notes due April 2048
|
1,500
|
|
|
1,500
|
|
5.500% senior notes due February 2049
|
1,500
|
|
|
1,500
|
|
4.900% senior notes due April 2058
|
500
|
|
|
500
|
|
Consolidated subsidiaries:
|
|
|
|
MarkWest - 4.500% - 4.875% senior notes, due 2023-2025
|
23
|
|
|
23
|
|
Financing lease obligations
(1)
|
8
|
|
|
6
|
|
Total
|
14,473
|
|
|
13,856
|
|
Unamortized debt issuance costs
|
(95
|
)
|
|
(97
|
)
|
Unamortized discount
|
(342
|
)
|
|
(366
|
)
|
Amounts due within one year
|
(6
|
)
|
|
(1
|
)
|
Total long-term debt due after one year
|
$
|
14,030
|
|
|
$
|
13,392
|
|
(1) See Note
19
for lease information.
Credit Agreement
MPLX has a
$2.25 billion
five-year bank revolving credit facility that expires in July 2022 (the “MPLX Credit Agreement”). During the
six
months ended
June 30, 2019
, MPLX borrowed
$2,275 million
under the MPLX Credit Agreement, at an average interest rate of
3.802 percent
,
and repaid
$1,660 million
.
At
June 30, 2019
, MPLX had
$615 million
outstanding borrowings and
$3 million
letters of credit outstanding under the facility, resulting in total availability of
$1.632 billion
, or
72.5 percent
of the borrowing capacity
.
Senior Notes
On December 10, 2018, MPLX redeemed all
$750 million
of its
5.5 percent
senior notes due February 15, 2023,
$40 million
of which was issued by the MarkWest subsidiary. These notes were redeemed at
101.833 percent
of the principal amount, which resulted in a payment of
$14 million
related to the note premium and the immediate recognition of
$46 million
of unamortized debt issuance costs.
On November 15, 2018, MPLX issued
$2.25 billion
aggregate principal amount of senior notes in a public offering, consisting of
$750 million
aggregate principal amount of
4.8 percent
unsecured senior notes due February 2029 and
$1.5 billion
aggregate principal amount of
5.5 percent
unsecured senior notes due February 2049 (collectively, the “November 2018 New Senior Notes”). The November 2018 New Senior Notes were offered at a price to the public of
99.432 percent
and
98.031 percent
of par, respectively. The proceeds were used to repay outstanding borrowings under the MPLX Credit Agreement and the MPC Loan Agreement and to redeem all
$750 million
of its
5.5 percent
senior notes due February 2023, as well as for general business purposes. Interest on each series of the November 2018 New Senior Notes is payable semi-annually in arrears, commencing on February 15, 2019.
On
February 8, 2018
, MPLX issued
$5.5 billion
aggregate principal amount of senior notes in a public offering, consisting of
$500 million
aggregate principal amount of
3.375
percent unsecured senior notes due
March 2023
,
$1.25 billion
aggregate principal amount of
4.0 percent
unsecured senior notes due
March 2028
,
$1.75 billion
aggregate principal amount of
4.5 percent
unsecured senior notes due
April 2038
, $
1.5 billion
aggregate principal amount of
4.7 percent
unsecured senior notes due
April 2048
, and
$500 million
aggregate principal amount of
4.9 percent
unsecured senior notes due
April 2058
(collectively, the “February 2018 New Senior Notes”). The February 2018 New Senior Notes were offered at a price to the public of
99.931 percent
,
99.551 percent
,
98.811 percent
,
99.348 percent
, and
99.289 percent
of par, respectively. Also on
February 8, 2018
,
$4.1 billion
of the net proceeds were used to repay a 364-day term loan facility, which was drawn on February 1, 2018 to fund the cash portion of the dropdown consideration for Refining Logistics and Fuels Distribution. The remaining proceeds were used to repay outstanding borrowings under the MPLX Credit Agreement and the MPC Loan Agreement, as well as for general business purposes. Interest on each series of notes due in 2023 and 2028 is payable semi-annually in arrears, commencing on September 15, 2018. Interest on each series of notes due in 2038, 2048 and 2058 is payable semi-annually in arrears, commencing on October 15, 2018.
15
. Revenue
Disaggregation of Revenue
The following tables represent a disaggregation of revenue for each reportable segment for the
three and six
months ended
June 30, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
(In millions)
|
L&S
|
|
G&P
|
|
Total
|
Revenues and other income:
|
|
|
|
|
|
Service revenue
|
$
|
33
|
|
|
$
|
415
|
|
|
$
|
448
|
|
Service revenue - related parties
|
620
|
|
|
—
|
|
|
620
|
|
Service revenue - product related
|
—
|
|
|
26
|
|
|
26
|
|
Product sales
(1)
|
2
|
|
|
166
|
|
|
168
|
|
Product sales - related parties
|
2
|
|
|
12
|
|
|
14
|
|
Total revenues from contracts with customers
|
$
|
657
|
|
|
$
|
619
|
|
|
1,276
|
|
Non-ASC 606 revenue
(2)
|
|
|
|
|
353
|
|
Total revenues and other income
|
|
|
|
|
$
|
1,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
(In millions)
|
L&S
|
|
G&P
|
|
Total
|
Revenues and other income:
|
|
|
|
|
|
Service revenue
|
$
|
32
|
|
|
$
|
378
|
|
|
$
|
410
|
|
Service revenue - related parties
|
549
|
|
|
—
|
|
|
549
|
|
Service revenue - product related
|
—
|
|
|
51
|
|
|
51
|
|
Product sales
(1)
|
1
|
|
|
207
|
|
|
208
|
|
Product sales - related parties
|
2
|
|
|
11
|
|
|
13
|
|
Total revenues from contracts with customers
|
$
|
584
|
|
|
$
|
647
|
|
|
1,231
|
|
Non-ASC 606 revenue
(2)
|
|
|
|
|
347
|
|
Total revenues and other income
|
|
|
|
|
$
|
1,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
(In millions)
|
L&S
|
|
G&P
|
|
Total
|
Revenues and other income:
|
|
|
|
|
|
Service revenue
|
$
|
67
|
|
|
$
|
819
|
|
|
$
|
886
|
|
Service revenue - related parties
|
1,198
|
|
|
—
|
|
|
1,198
|
|
Service revenue - product related
|
—
|
|
|
60
|
|
|
60
|
|
Product sales
(1)
|
3
|
|
|
367
|
|
|
370
|
|
Product sales - related parties
|
4
|
|
|
21
|
|
|
25
|
|
Total revenues from contracts with customers
|
$
|
1,272
|
|
|
$
|
1,267
|
|
|
2,539
|
|
Non-ASC 606 revenue
(2)
|
|
|
|
|
736
|
|
Total revenues and other income
|
|
|
|
|
$
|
3,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
(In millions)
|
L&S
|
|
G&P
|
|
Total
|
Revenues and other income:
|
|
|
|
|
|
Service revenue
|
$
|
60
|
|
|
$
|
732
|
|
|
$
|
792
|
|
Service revenue - related parties
|
1,020
|
|
|
—
|
|
|
1,020
|
|
Service revenue - product related
|
—
|
|
|
95
|
|
|
95
|
|
Product sales
(1)
|
2
|
|
|
412
|
|
|
414
|
|
Product sales - related parties
|
3
|
|
|
14
|
|
|
17
|
|
Total revenues from contracts with customers
|
$
|
1,085
|
|
|
$
|
1,253
|
|
|
2,338
|
|
Non-ASC 606 revenue
(2)
|
|
|
|
|
660
|
|
Total revenues and other income
|
|
|
|
|
$
|
2,998
|
|
(1) G&P “Product sales” for the
three and six
months ended
June 30, 2018
includes approximately
$2 million
and
$1 million
of revenue related to derivative gains and losses and mark-to-market adjustments, respectively. There were
no
adjustments for the
three and six
months ended
June 30, 2019
.
(2) Non-ASC 606 Revenue includes rental income, income from equity method investments, derivative gains and losses, mark-to-market adjustments, and other income.
Contract Balances
Contract assets typically relate to 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 generally classified as current and included in “Other current 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. Both types of transactions 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 table below reflects the changes in our contract balances for the period ended
June 30, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Balance at December 31, 2018
(1)
|
|
Additions/ (Deletions)
|
|
Revenue Recognized
(2)
|
|
Balance at June 30, 2019
|
Contract assets
|
$
|
4
|
|
|
$
|
2
|
|
|
$
|
(1
|
)
|
|
$
|
5
|
|
Deferred revenue
|
4
|
|
|
2
|
|
|
(1
|
)
|
|
5
|
|
Deferred revenue - related parties
|
50
|
|
|
4
|
|
|
(17
|
)
|
|
37
|
|
Long-term deferred revenue
|
10
|
|
|
3
|
|
|
—
|
|
|
13
|
|
Long-term deferred revenue - related parties
|
$
|
42
|
|
|
$
|
(2
|
)
|
|
$
|
—
|
|
|
$
|
40
|
|
(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 period.
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
June 30, 2019
, the amounts allocated to contract assets and contract liabilities on the Consolidated Balance Sheets are
$93 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
25 years
. Further, MPLX does not disclose variable consideration due to volume variability in the table below.
|
|
|
|
|
(In millions)
|
|
2019
|
$
|
587
|
|
2020
|
1,181
|
|
2021
|
1,196
|
|
2022
|
1,181
|
|
2023 and thereafter
|
5,655
|
|
Total revenue on remaining performance obligations
(1),(2),(3)
|
$
|
9,800
|
|
(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 are included in “Rental income” and 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.
16
. Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
(In millions)
|
June 30, 2019
|
|
December 31, 2018
|
Cash and cash equivalents
|
$
|
7
|
|
|
$
|
68
|
|
Restricted cash
(1)
|
—
|
|
|
8
|
|
Cash, cash equivalents and restricted cash
|
$
|
7
|
|
|
$
|
76
|
|
(1) The restricted cash balance is included within “Other current assets” on the Consolidated Balance Sheets.
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
(In millions)
|
2019
|
|
2018
|
Net cash provided by operating activities included:
|
|
|
|
Interest paid (net of amounts capitalized)
|
$
|
284
|
|
|
$
|
154
|
|
Income taxes paid
|
—
|
|
|
1
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
|
Payments on operating leases
|
35
|
|
|
—
|
|
Non-cash investing and financing activities:
|
|
|
|
Net transfers of property, plant and equipment from materials and supplies inventories
|
1
|
|
|
2
|
|
ROU assets obtained in exchange for new operating lease obligations
|
6
|
|
|
—
|
|
ROU assets obtained in exchange for new finance lease obligations
|
$
|
3
|
|
|
$
|
—
|
|
The Consolidated Statements of Cash Flows exclude changes to the Consolidated Balance Sheets that did not affect cash. The following is the change of additions to property, plant and equipment related to capital accruals:
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
(In millions)
|
2019
|
|
2018
|
(Decrease)/increase in capital accruals
|
$
|
(85
|
)
|
|
$
|
115
|
|
17
. Accumulated Other Comprehensive Loss
MPLX LP records an accumulated other comprehensive loss on the Consolidated Balance Sheets relating to pension and other post-retirement benefits provided by LOOP LLC (“LOOP”) and Explorer Pipeline Company (“Explorer”) to their employees. MPLX LP is not a sponsor of these benefit plans.
The following table shows the changes in “Accumulated other comprehensive loss” by component during the period
December 31, 2018
through
June 30, 2019
.
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Pension
Benefits
|
|
Other
Post-Retirement Benefits
|
|
Total
|
Balance at December 31, 2018
(1)
|
$
|
(14
|
)
|
|
$
|
(2
|
)
|
|
$
|
(16
|
)
|
Other comprehensive income - remeasurements
(2)
|
—
|
|
|
1
|
|
|
1
|
|
Balance at June 30, 2019
(1)
|
$
|
(14
|
)
|
|
$
|
(1
|
)
|
|
$
|
(15
|
)
|
The following table shows the changes in “Accumulated other comprehensive loss” by component during the period
December 31, 2017
through
June 30, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Pension
Benefits
|
|
Other
Post-Retirement Benefits
|
|
Total
|
Balance at December 31, 2017
(1)
|
$
|
(13
|
)
|
|
$
|
(1
|
)
|
|
$
|
(14
|
)
|
Other comprehensive loss - remeasurements
(2)
|
(1
|
)
|
|
(1
|
)
|
|
(2
|
)
|
Balance at June 30, 2018
(1)
|
$
|
(14
|
)
|
|
$
|
(2
|
)
|
|
$
|
(16
|
)
|
(1) These components of “Accumulated other comprehensive loss” are included in the computation of net periodic benefit cost by LOOP and Explorer and are therefore included on the Consolidated Statements of Income under the caption “Income/(loss) from equity method investments.”
(2) Components of other comprehensive income/loss - remeasurements relate to actuarial gains and losses as well as amortization of prior service costs. MPLX records an adjustment to “Comprehensive income” in accordance with its ownership interest in LOOP and Explorer.
18
. Equity-Based Compensation
Phantom Units
– The following is a summary of phantom unit award activity of MPLX LP common units for the
six
months ended
June 30, 2019
:
|
|
|
|
|
|
|
|
|
Number
of Units
|
|
Weighted
Average
Fair Value
|
Outstanding at December 31, 2018
|
1,154,335
|
|
|
$
|
34.34
|
|
Granted
|
197,345
|
|
|
33.08
|
|
Settled
|
(377,559
|
)
|
|
33.42
|
|
Forfeited
|
(16,255
|
)
|
|
34.82
|
|
Outstanding at June 30, 2019
|
957,866
|
|
|
$
|
34.44
|
|
Performance Units
– MPLX grants performance units to certain officers of the general partner and certain eligible
MPC officers who make significant contributions to its business. These performance units pay out
75 percent
in cash and
25 percent
in MPLX LP common units and often contain both market and performance conditions based on various metrics. Market conditions are valued using a Monte Carlo valuation while performance conditions are reevaluated periodically and valued at the compensation cost associated with the performance outcome deemed most probable.
The performance units granted in 2019 are hybrid awards having a three-year performance period of January 1, 2019 through December 31, 2021. The payout of the award is dependent on two independent conditions, each constituting 50 percent of the overall target units granted. The awards have a performance condition based on MPLX LP’s distributable cash flow, and a market condition based on MPLX LP’s total unitholder return. The market condition was valued using a Monte Carlo valuation, resulting in a grant date fair value of
$.68
per unit for the 2019 equity-classified performance units. Grant date fair value of the performance condition is based on potential payouts per unit of up to
$2.00
per unit. Compensation cost associated with the
performance condition is based on the grant date fair value of the payout deemed most probable to occur and is adjusted as the expectation for payout changes.
During the first quarter of 2018, a performance award was granted; however, a grant date could not be established based on the nature of the award terms. Given that a grant date cannot be established, no expense or units have been recorded. When a grant date is established, the fair value of the award will be recognized over the remaining performance period.
The following is a summary of the activity for performance unit awards to be settled in MPLX LP common units for the
six
months ended
June 30, 2019
:
|
|
|
|
|
Number of
Units
|
Outstanding at December 31, 2018
|
1,941,750
|
|
Granted
|
987,994
|
|
Settled
|
(772,397
|
)
|
Forfeited
|
—
|
|
Outstanding at June 30, 2019
|
2,157,347
|
|
19
. Leases
For further information regarding the adoption of ASC 842, including the method of adoption and practical expedients elected, see Note
2
.
Lessee
We lease a wide variety of facilities and equipment under leases from third parties, including land and building space, office and field equipment, storage facilities and transportation equipment, while our related party leases primarily relate to ground leases associated with our refining logistics assets. Our remaining lease terms range from less than one year to 60 years. Some long-term leases include renewal options ranging from one to 50 years and, in certain leases, also include purchase options. Renewal options and termination options were not included in the measurement of ROU assets and lease liabilities since it was determined they were not reasonably certain to be exercised.
Under ASC 842, the components of lease costs were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019
|
|
Six Months Ended June 30, 2019
|
(In millions)
|
Related Party
|
|
Third Party
|
|
Related Party
|
|
Third Party
|
Components of lease costs:
|
|
|
|
|
|
|
|
Operating lease costs
|
$
|
4
|
|
|
$
|
14
|
|
|
$
|
8
|
|
|
$
|
28
|
|
Variable lease cost
|
—
|
|
|
1
|
|
|
—
|
|
|
3
|
|
Short-term lease cost
|
—
|
|
|
11
|
|
|
—
|
|
|
21
|
|
Total lease cost
|
$
|
4
|
|
|
$
|
26
|
|
|
$
|
8
|
|
|
$
|
52
|
|
Supplemental balance sheet data related to leases were as follows:
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
(In millions)
|
Related Party
|
|
Third Party
|
Operating leases
|
|
|
|
Assets
|
|
|
|
Right of use assets
|
$
|
232
|
|
|
$
|
255
|
|
Liabilities
|
|
|
|
Operating lease liabilities
|
1
|
|
|
47
|
|
Long-term operating lease liabilities
|
231
|
|
|
209
|
|
Total operating lease liabilities
|
$
|
232
|
|
|
$
|
256
|
|
Weighted average remaining lease term
|
47.67 years
|
|
|
6.74 years
|
|
Weighted average discount rate
|
5.80
|
%
|
|
4.31
|
%
|
|
|
|
|
Finance leases
|
|
|
|
Assets
|
|
|
|
Property, plant and equipment, gross
|
|
|
$
|
27
|
|
Accumulated depreciation
|
|
|
9
|
|
Property, plant and equipment, net
|
|
|
18
|
|
Liabilities
|
|
|
|
Other current liabilities
|
|
|
6
|
|
Long-term debt
|
|
|
2
|
|
Total finance lease liabilities
|
|
|
$
|
8
|
|
Weighted average remaining lease term
|
|
|
16.82 years
|
|
Weighted average discount rate
|
|
|
5.76
|
%
|
As of
June 30, 2019
, maturities of lease liabilities for operating lease obligations and finance lease obligations having initial or remaining non-cancellable lease terms in excess of one year are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Related Party Operating
Leases
|
|
Third Party Operating
Leases
|
|
Finance
Leases
|
2019
|
$
|
8
|
|
|
$
|
30
|
|
|
$
|
1
|
|
2020
|
14
|
|
|
55
|
|
|
6
|
|
2021
|
14
|
|
|
52
|
|
|
—
|
|
2022
|
14
|
|
|
47
|
|
|
—
|
|
2023
|
14
|
|
|
43
|
|
|
—
|
|
2024 and thereafter
|
619
|
|
|
68
|
|
|
7
|
|
Gross lease payments
|
683
|
|
|
295
|
|
|
14
|
|
Less: imputed interest
|
451
|
|
|
39
|
|
|
6
|
|
Total lease liabilities
|
$
|
232
|
|
|
$
|
256
|
|
|
$
|
8
|
|
Future minimum commitments as of December 31, 2018, for capital lease obligations and for operating lease obligations having initial or remaining non-cancellable lease terms in excess of one year are as follows:
|
|
|
|
|
|
|
|
|
(In millions)
|
Operating
Lease
Obligations
|
|
Capital
Lease
Obligations
|
2019
|
$
|
73
|
|
|
$
|
2
|
|
2020
|
70
|
|
|
5
|
|
2021
|
67
|
|
|
—
|
|
2022
|
64
|
|
|
—
|
|
2023
|
58
|
|
|
—
|
|
2024 and thereafter
|
719
|
|
|
—
|
|
Total minimum lease payments
|
$
|
1,051
|
|
|
7
|
|
Less: imputed interest costs
|
|
|
1
|
|
Present value of net minimum lease payments
|
|
|
$
|
6
|
|
Lessor
Based on the terms of fee-based transportation and storage services agreements with MPC as well as certain natural gas gathering, transportation and processing agreements, MPLX is considered to be the lessor under several operating lease arrangements in accordance with GAAP. The agreements with MPC have remaining terms ranging from less than one year to 12 years with renewal options ranging from zero to 10 years. MPLX’s primary natural gas lease operations relate to a natural gas gathering agreement in the Marcellus Shale for which it earns a fixed-fee for providing gathering services to a single producer using a dedicated gathering system. As the gathering system is expanded, the fixed-fee charged to the producer is adjusted to include the additional gathering assets in the lease. The primary term of the natural gas gathering arrangement expires in 2038 and will continue thereafter on a year-to-year basis until terminated by either party. Other significant natural gas implicit leases relate to a natural gas processing agreement in the Marcellus Shale and a natural gas processing agreement in the Southern Appalachia region for which MPLX earns minimum monthly fees for providing processing services to a single producer using a dedicated processing plant. The primary term of these natural gas processing agreements expires during 2023 and 2033, these contracts will continue thereafter on a year-to-year basis until terminated by either party. MPLX’s revenue from its lease arrangements, excluding executory costs, totaled approximately
$216 million
and
$464 million
for the
three and six
months ended
June 30, 2019
, respectively.
MPLX did not elect to use the practical expedient to combine lease and non-lease components for lessor arrangements. The tables below represent the portion of the contract allocated to the lease component based on relative standalone selling price. Lessor agreements are currently deemed operating, as we elected the practical expedient to carry forward historical classification conclusions. We will determine the impact of the new standard on these arrangements if and when a modification occurs and they are required to be assessed under ASC 842. MPLX may be required to re-classify existing operating leases to sales-type leases upon modification and related reassessment of the leases.
MPLX’s lease arrangements related to the processing facilities contain contingent rental provisions whereby MPLX receives additional fees if the producer customer exceeds the monthly minimum processed volumes. During the
three and six
months ended
June 30, 2019
, MPLX received less than
$1 million
of contingent lease payments.
The following is a schedule of minimum future rental revenue on the non-cancellable operating leases as of
June 30, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Related Party
|
|
Third Party
|
|
Total
|
2019
|
$
|
316
|
|
|
$
|
90
|
|
|
$
|
406
|
|
2020
|
633
|
|
|
178
|
|
|
811
|
|
2021
|
636
|
|
|
169
|
|
|
805
|
|
2022
|
635
|
|
|
166
|
|
|
801
|
|
2023
|
623
|
|
|
161
|
|
|
784
|
|
2024 and thereafter
|
2,409
|
|
|
1,264
|
|
|
3,673
|
|
Total minimum future rentals
|
$
|
5,252
|
|
|
$
|
2,028
|
|
|
$
|
7,280
|
|
The following is a schedule of minimum future rental revenue on the non-cancellable operating leases as of December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Related Party
|
|
Third Party
|
|
Total
|
2019
|
$
|
748
|
|
|
$
|
160
|
|
|
$
|
908
|
|
2020
|
750
|
|
|
159
|
|
|
909
|
|
2021
|
627
|
|
|
150
|
|
|
777
|
|
2022
|
627
|
|
|
148
|
|
|
775
|
|
2023
|
616
|
|
|
142
|
|
|
758
|
|
2024 and thereafter
|
2,321
|
|
|
1,111
|
|
|
3,432
|
|
Total minimum future rentals
|
$
|
5,689
|
|
|
$
|
1,870
|
|
|
$
|
7,559
|
|
The following schedule summarizes MPLX’s investment in assets held for operating lease by major classes as of
June 30, 2019
and
December 31, 2018
:
|
|
|
|
|
|
|
|
|
(In millions)
|
June 30, 2019
|
|
December 31, 2018
|
Natural gas gathering and NGL transportation pipelines and facilities
|
$
|
1,038
|
|
|
$
|
964
|
|
Processing, fractionation and storage facilities
|
1,550
|
|
|
1,398
|
|
Pipelines and related assets
|
275
|
|
|
266
|
|
Barges and towing vessels
|
656
|
|
|
619
|
|
Terminals and related assets
|
1,185
|
|
|
1,178
|
|
Refinery related assets
|
949
|
|
|
938
|
|
Land, building, office equipment and other
|
207
|
|
|
162
|
|
Total
|
5,860
|
|
|
5,525
|
|
Less accumulated depreciation
|
2,230
|
|
|
2,038
|
|
Property, plant and equipment, net
|
$
|
3,630
|
|
|
$
|
3,487
|
|
20
. 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 an accrued liability, MPLX is unable to estimate a range of possible losses for the reasons discussed in more detail below. For matters for which MPLX has recorded an accrued liability, MPLX does not consider it reasonably possible that a loss resulting from such matter in excess of any amounts accrued has been incurred that is expected to have a material adverse effect on MPLX’s consolidated financial position, results of operations or cash flows. 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
June 30, 2019
and
December 31, 2018
, accrued liabilities for remediation totaled
$16 million
and
$14 million
, respectively. However, it is not presently possible to estimate the ultimate amount of all remediation costs that might be incurred or the penalties, if any, which may be imposed. At
June 30, 2019
and
December 31, 2018
, there were
no
balances with MPC for indemnification of environmental costs.
MPLX is involved in environmental enforcement matters arising in the ordinary course of business. While the outcome and impact on MPLX LP 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.
Other Lawsuits
– MPLX, MarkWest, MarkWest Liberty Midstream, MarkWest Liberty Bluestone, L.L.C., Ohio Fractionation and MarkWest Utica EMG (collectively, the “MPLX Parties”) are parties to various lawsuits with Bilfinger Westcon, Inc. (“Westcon”) that were instituted in 2016 and 2017 in Pennsylvania, West Virginia and Ohio. The lawsuits relate to disputes regarding construction work performed by Westcon at the Bluestone, Mobley and Cadiz processing complexes in Pennsylvania,
West Virginia and Ohio, respectively, and the Hopedale fractionation complex in Ohio. With respect to work performed by Westcon at the Mobley and Bluestone processing complexes, one or more of the MPLX Parties have asserted breach of contract, fraud, and with respect to work performed at the Mobley processing complex, MarkWest Liberty Midstream has also asserted negligent misrepresentation claims against Westcon. Westcon has also asserted claims against one or more of the MPLX Parties regarding these construction projects for breach of contract, unjust enrichment, promissory estoppel, fraud and constructive fraud, tortious interference with contractual relations, and civil conspiracy. Collectively, in the several cases, the MPLX Parties sought in excess of
$10 million
, plus an unspecified amount of punitive damages. Collectively, in the several cases, Westcon sought in excess of
$40 million
, plus an unspecified amount of punitive damages. On July 31, 2019, Westcon and the MPLX Parties reached an agreement to resolve the disputes among those parties relating to the Bluestone processing complex in Pennsylvania. The settlement will not have a material adverse effect on MPLX’s consolidated financial position, results of operations or cash flows. While the ultimate outcome and impact to MPLX cannot be predicted with certainty, MPLX does not consider it reasonably possible that a loss resulting from the remaining lawsuits or other proceedings in excess of any amounts accrued has been incurred that is expected to have a material adverse effect on its consolidated financial position, results of operations, or cash flows.
In 2003, the State of Illinois brought an action against the Premcor Refining Group, Inc. (“Premcor”) and Apex Refining Company (“Apex”) asserting claims for environmental cleanup related to the refinery owned by these entities in the Hartford/Wood River, Illinois area. In 2006, Premcor and Apex filed third-party complaints against numerous owners and operators of petroleum products facilities in the Hartford/Wood River, Illinois area, including Marathon Pipe Line LLC (“MPL”). These complaints, which have been amended since filing, assert claims of common law nuisance and contribution under the Illinois Contribution Act and other laws for environmental cleanup costs that may be imposed on Premcor and Apex by the State of Illinois. On September 6, 2016, the trial court approved a settlement between Apex and the State of Illinois whereby Apex agreed to settle all claims against it for a
$10 million
payment. Premcor filed a motion for permissive appeal and requested a stay to the proceeding until the motion is ruled upon. Premcor reached a settlement with the State of Illinois in the second quarter of 2018, which has been objected to by certain third-party defendants, including MPL, and is subject to court approval. Several third-party defendants in the litigation including MPL have asserted cross-claims in contribution against the various third-party defendants. This litigation is currently pending in the Third Judicial Circuit Court, Madison County, Illinois. The trial concerning Premcor’s claims against third-party defendants, including MPL, previously scheduled to commence September 10, 2018, has been postponed and a new trial date has not been set. While the ultimate outcome and impact to MPLX cannot be predicted with certainty, MPLX does not consider it reasonably possible that a loss resulting from such lawsuits or other proceedings in excess of any amounts accrued has been incurred that is expected to have a material adverse effect on its consolidated financial position, results of operations, or cash flows. Under the omnibus agreement, MPC will indemnify MPLX for the full cost of any losses should MPL be deemed responsible for any damages in this lawsuit.
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, MPLX believes the resolution of these other lawsuits and proceedings will not 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.
In connection with our approximate
9 percent
indirect interest in a joint venture that owns and operates the Dakota Access Pipeline and Energy Transfer Crude Oil Pipeline projects, collectively referred to as the Bakken Pipeline system, we have entered into a Contingent Equity Contribution Agreement whereby MPLX LP, along with the other joint venture owners in the Bakken Pipeline system, have 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 Bakken Pipeline system. As of
June 30, 2019
, our maximum potential undiscounted payments under the Contingent Equity Contribution Agreement were approximately
$230 million
.
Contractual Commitments and Contingencies
– At
June 30, 2019
, MPLX’s contractual commitments to acquire property, plant and equipment totaled
$528 million
. These commitments were primarily related to plant expansion projects for the
Marcellus and Southwest Operations. In addition, 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
June 30, 2019
, 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.
21
. Subsequent Events
As previously disclosed, on May 7, 2019, ANDX, TLGP, MPLX, MPLX GP and Merger Sub, entered into a Merger Agreement that provided for, among other things, the merger of Merger Sub with and into ANDX. On July 30, 2019, the Merger was completed, and ANDX survived the Merger as a wholly-owned subsidiary of MPLX. At the effective time of the Merger, each common unit held by ANDX’s public unitholders was converted into the right to receive
1.135
MPLX common units. ANDX common units held by certain affiliates of MPC were converted into the right to receive
1.0328
MPLX common units. Also effective July 30, 2019 in connection with the closing of the Merger, MPLX amended and restated its existing
$2.25 billion
revolving credit facility to increase borrowing capacity to up to
$3.5 billion
and extend its term to July 30, 2024. ANDX’s revolving credit facilities totaling
$2.1 billion
in borrowing capacity were terminated upon the closing and repaid with borrowings under the MPLX revolving credit facility. Additionally, on July 31, 2019, MPLX upsized its existing
$1.0 billion
intercompany loan agreement with MPC to
$1.5 billion
. See Note 3 for additional information related to this transaction.