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Executives

Pamela Beall - Vice President, Investor Relations

Gary Heminger - Chairman and Chief Executive Officer

Garry Peiffer - President

Donald Templin - Vice President and Chief Financial Officer.

Analysts

Jerren Holder - Barclays

MPLX LP (MPLX) Q4 2012 Earnings Call January 30, 2013 2:00 PM ET

Operator

Welcome to the MPLX Corporation's fourth quarter 2012 earnings conference call. (Operator Instructions) I now turn the call over to Pam Beall.

Pamela Beall

Welcome to the MPLX inaugural fourth quarter 2012 earnings webcast and conference call. The synchronized slides that accompany this call can be found on our MPLX website. On the call today are Gary Heminger, Chairman and CEO; Garry Peiffer, President of MPLX; and Don Templin, Chief Financial Officer.

Turning to Slide 2, please read the Safe Harbor statement. It is a reminder that we will be making forward-looking statements during the presentation and during the question-and-answer session. Actual results may differ materially from what we expect today. And factors that could cause actual results to differ are included here as well as in our filings with these Securities and Exchange Commission.

Now, I'll turn the call over to Gary Heminger for opening remarks.

Gary Heminger

Thanks, Pam, and good afternoon and thank you for joining us today for the first earnings conference call for MPLX. Please turn to Slide 3. On October 26, we announced the final terms of the IPO of MPLX. So we are just beginning our first full quarter as a new public entity. We believe we have created a premier MLP, one that has some very attractive features for MLP investors.

MPLX is a fee-based business with stable cash flows and multiple avenues to grow earnings and distributions over an extended period of time. MPLX is sponsored by an investment grade parent, Marathon Petroleum Corporation, with a significant and growing portfolio of logistics assets that could be acquired by MPLX in the future.

MPLX assets are integral to MPC's integrated logistics and marketing system, providing MPC's refineries access to foreign, Canadian and domestic crude sources, and finished products to its wholesale and retail marketing consumers. The growing production of crude oil and natural gas liquids and changing supply patterns create opportunities for MPLX to play a vital role in the fast-changing energy landscape.

MPC intends for MPLX to be its primary vehicle to own, operate and grow its midstream business. Additionally, MPC has a large portfolio of MLP qualifying assets, including the 49% retained interest in MPLX's initial pipeline assets that can be offered to MPLX over time to help us achieve our desired annual distribution growth rate.

An example of the growing portfolio of MPC logistics assets are those related to logistics assets including three NGL pipelines and four light product storage terminals embedded in the acquisition of BP's assets in the Western Gulf. That acquisition is targeted to close on Friday, February 1.

An additional example is MPC's recent agreement to be the anchor shipper on the proposed 3,000 barrel per day Southern Access Extension pipeline from Flanagan, Illinois, near Chicago to Patoka, Illinois, for which MPC will have an option to acquire the 25% equity interest. Over 70% of MPLX's 2013 estimated revenue is expected to be generated through farm commitment, sea based transportation, and storage agreements with the MPC.

Growth in cash flows are expected to come from annual increases in FERC based transportation rates, drop downs in organic expansion projects within our owned current geographic footprint or new areas of the country. In addition, we may pursue the acquisitions either independently or cooperatively with MPC.

MPLX is well capitalized with $500 million undrawn revolving credit facility and minimal current debt. To foster organic growth MPLX retained $192 million of IPO proceeds, to pre-fund identified organic capital spending projects over the next two years. The majority of this capital will be allocated to an expansion an upgrade project at the Patoka, Illinois to Catlettsburg, Kentucky crude oil pipeline.

MPLX will also have significant opportunities to grow third-party business that it can evaluate independently or in cooperation with MPC. An example of these opportunities is a lot of intent that MPC recently signed with Harvest Pipeline Company to jointly develop infrastructure that will facilitate transportation on the Ohio River of hydrocarbon liquids production from Utica Shale in Eastern Ohio and Western Pennsylvania.

Marathon Pipeline has signed an agreement with Marathon Oil Corporation to extend the operating agreement associated with MOC's Red Butte pipeline. The term extends MPL's operatorship to December 31, 2018, five years beyond the current term that expires at yearend 2013. The extension allows a continuation of this third-party business, operating the Red Butte system, and we look forward to continuing to expand to our third-party business.

In our business we regard health and safety as core values. When our operations are safe and our people healthy, we know our results will be much better. That certainly has held true as MPC employees and contractors helped us achieve our best ever safety performance in 2012, an accomplishment of which we can all be proud.

We are enthusiastic about the prospects for MPLX. We announced our first distribution on January 25, prorated for the post-IPO period commencing October 31, 2012. The announced distribution of $0.1769 per unit for this abbreviated period is equivalent to the $0.2625 minimum quarterly distribution disclosed in our prospectus. As I said, we have multiple avenues to achieve our desired growth and distributable cash flow, and we look forward to updating you each quarter with our growth prospects.

Now, I will turn the call over to Don Templin to provide a more detailed update on the financial results for the post-IPO period in the fourth quarter.

Donald Templin

Thanks Garry. Due to significant differences in the assets and tariff structure included in the historical financial statements compared to the post-IPO MPLX, I will be focusing my comments on MPLX's results on a post-IPO basis.

Net income, adjusted EBITDA and distributable cash flow will be discussed for the period October 31 through December 31, 2012. MPLX revenues and other income for the post-IPO period was $83.6 million, driven primarily by total pipeline throughput of nearly 2.1 million barrels per day.

Marathon Petroleum Corporation and related parties accounted for approximately 87% of those revenues, which included revenues attributable to volume shipped by MPC under joint tariffs with third parties that are treated as third-party revenue for accounting purposes. After deducting the 49% interest retained by MPC, adjusted EBITDA attributable to MPLX for the post-IPO period was $18.2 million. Financial results for the post-IPO period were consistent with our expectations.

Turning to Slide 5. Distributable cash flow for the post-IPO period was $16.7 million. As Garry mentioned, our board declared our first cash distribution of $0.1769 per unit, which was prorated for the post-IPO period. The total cash distribution for the post-IPO period will be $13.3 million, and represents a coverage ratio of 1.25 times.

As indicated in the prospectus, we plan to target an annual coverage ratio of 1.1 times. However, we do not necessarily expect to achieve a 1.1 times coverage ratio each quarter due to the seasonality in some of our spending.

Slide 6 shows that at the end of the fourth quarter, we had $216.7 million of cash, primarily to pre-fund $177.6 million of planned capital projects. The partnership also had access to a $500 million unused revolving credit facility to fund organic growth opportunities or acquisitions from MPC or from third parties. With minimal debt, our consolidated total debt to consolidated EBITDA covenant ratio is close to zero at 0.1 times well below the maximum allowed of 5 times.

Turning to Slide 7. Our 2013 approved capital budget on 100% basis is $142 million. We estimate that our expansion capital expenditures would be approximately $109 million, and they have been pre-funded with proceeds from the IPO. The remainder is maintenance capital. Approximately 72% of the expansion capital relates to the Patoka to Catlettsburg crude oil pipeline project. The Patoka to Catlettsburg crude oil pipeline is a 256,000 barrel per day capacity pipeline, which supplies crude to MPC's Catlettsburg refinery.

This project, which is upgrading the pipeline to increase capacity and reliability, is scheduled to be complete in September 2014. The current tariff on this system already contemplates this entire project.

Southern Access Extension is the pipeline that Enbridge plans to build from Flanagan to Patoka, Illinois to bring Canadian and Bakken crudes into the Midwest refineries. MPLX will make investments associated with tying its Patoka tank farm into this new crude pipeline. The SCADA system is used by MPLX to remotely operate pipelines from the operation center here in Findlay, Ohio.

This project has been ongoing and it will upgrade both the software and hardware of the system and will also establish a platform for future growth. The $33 million of maintenance capital expenditures relate primarily to safety and security expenditures and cost related to valve replacement and electrical system maintenance.

Now, I will turn the call back to Pam Beall.

Pamela Beall

Thanks Don. We'll just go ahead and open up the call for questions.

Question-And-Answer Session

Operator

(Operator Instructions) Actually we do have a question, Jerren Holder from Barclays.

Jerren Holder - Barclays

So given the large dropdown inventory you guys have and obviously that's been going to be large growth driver for this MLP, how should we think about it as far as timing and size going forward?

Garry Peiffer

As you rightfully know, we believe we have a pretty good opportunity or lot of opportunities for MPLX to grow. And we've stated all along that we already have a very competitive and attractive distribution growth rates. So really the dropdowns that will occur, really will be driven by what other ways we grow our distributions.

Our primary growth rate is just to be at the tariff revenues, which we will be able to grow overtime. Some organic type of projects that Don talked about in his remarks, as well as some other opportunities we have. So to extent that tariff increases and volume increases on our pipelines and capital expenditures don't achieve the type of distribution growth that we want to achieve, then is when we will consider a dropdown.

I think if you look at a lot of other IPOs in the MLP space, that generally speaking they've had their first drop in the six to 12 month period after their IPO. And as you know about MPLX, we pretty much constructed this vehicle with this entity to be right down the middle of the fairway in terms of other MLPs. And I think we're going to continue to do anything we can to make sure that this typical, of a well-run, well-capitalized type of MLP.

Pamela Beall

It looks like there aren't going to be many questions today. So we just like to thank everyone for their interest in MPLX. And certainly, I'll be in the office this afternoon. If there are any follow-up questions, you can reach me at the corporate headquarters. So thanks everyone for joining us today.

Operator

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

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