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Executives

Tim Griffith - Vice President, Finance and Investor Relations

Gary Heminger - Chairman and Chief Executive Officer

Pam Beall - President

Don Templin - Chief Financial Officer

Analysts

Theresa Chen - Barclays Capital

Richard Roberts - Howard Weil

MPLX LP (MPLX) Q4 2013 Earnings Conference Call January 29, 2014 2:00 PM ET

Operator

Welcome to the MPLX Fourth Quarter and Full Year 2013 Earnings Conference Call. My name is Adrianne and I will be your operator for today’s call. At this time, all participants are in a listen only mode. Later, we will conduct a question-and-answer session. Please note this conference is being recorded.

I will now turn the call over to Tim Griffith. Tim Griffith, you may begin.

Tim Griffith - Vice President, Finance and Investor Relations

Okay, thank you, Adrianne. We will remind callers to that the synchronized slides that accompany this call can be found on mplx.com under the Investors tab. On the call today are Gary Heminger, Chairman and CEO; Pam Beall, President, MPLX; and Don Templin, Chief Financial Officer.

We invite you to read the Safe Harbor statements on Slide 2. It’s a reminder that we will be making forward-looking statements during this presentation and during the question-and-answer session. Some forward-looking statements may relate to MPLX’s sponsor, Marathon Petroleum Corporation. 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 the filings of both MPLX and Marathon Petroleum with the SEC.

Now, I will turn the call over to Gary Heminger for some opening remarks.

Gary Heminger - Chairman and Chief Executive Officer

Thank you Tim and good afternoon and thank you for joining us today for the fourth quarter 2013 earnings conference call for MPLX. Before we talk about the results, I wanted to highlight a few changes we have made as a result of Garry Peiffer’s retirement in December. Pam Beall, who was Vice President of Investor Relations, has become President and Director of MPLX. I selected Pam because of her deep business development experience and industry knowledge. These are key skills that will be very important as we continue to grow MPLX. Tim Griffith, who just introduced me, will be hosting our calls, has added Investor Relations to his current responsibilities as Vice President of Finance and Treasurer. Beth Hunter has been promoted to Director of Investor Relations reporting to Tim and will serve as the day-to-day contact for investors and analysts with help from Jerry Ewing. This is a very strong team and demonstrates the importance we placed on succession planning, growing MPLX and maintaining a robust dialogue with our shareholders and the investment community. We will be making the appropriate personal introductions as the opportunities present themselves over the next several months.

Now, I will turn the call over to Pam who will discuss how MPLX has demonstrated our ability to add unitholder value in this first full year as a publicly traded partnership. Pam?

Pam Beall - President

Thank you, Gary. MPLX reported solid financial results for the fourth quarter finishing the year with performance that was consistent with our expectations. We are pleased that our Board of Directors recently declared a distribution of $0.3125 per unit for the fourth quarter. This level represents a 19% increase over the minimum quarterly distribution of $0.2625 established at the time of the MPLX IPO in October of 2012. During the MPLX first full year as a publicly traded partnership, we increased our distribution every quarter. Our objective is to maintain an attractive distribution growth profile for our unitholders over an extended period of time targeting a 15% to 20% annual growth rate over the next several years. This growth will come from a combination of increasing tariffs and volumes, organic growth as well as acquisitions from our sponsor, Marathon Petroleum Corporation or from third-parties.

During 2013, we initiated work on the Cornerstone Pipeline in Southeast Ohio, an organic project undertaken directly by MPLX that will leverage growing Utica shale liquids production and provide growth to MPLX distributable cash flows. As we said in the past, MPC intends to use MPLX as the primary growth vehicle for its midstream business. MPC currently has a significant number and variety of midstream assets, which could be dropped down to MPLX to help us achieve our long-term distribution growth goals. During 2013, we completed our first acquisition from our sponsor, MPC.

Although MPC has not finalized the EBITDA values associated with all of its eligible midstream assets, it estimates that including the 44% interest MPC currently retains in pipeline holdings, the EBITDA for these retained assets is approximately $800 million. This does not include the organic projects the MPC and MPLX expect to complete over the next several years, which could be an additional $300 million of annual EBITDA.

As an example, during 2013, MPC announced planned equity investments in the Enbridge Energy Partners’ Sandpiper and Southern Access Extension pipeline projects, which will link North American crude oil productions with the Midwest refining regions. These projects will not only increase access to the growing supply of North American crude for MPC, they also represent a potential source of additional stable cash flow that could be acquired by MPLX in the future.

If we turn to Slide 4, this shows significant capital expenditures for 2014 including the Cornerstone Pipeline and other Midwest infrastructure projects. These projects highlight the form of growth we generally prefer, cash flow growth resulting from direct organic investments. We continue to budget maintenance capital spending at about 15% of EBITDA. MPLX is taking steps to capitalize on the shifts in the energy markets. The increase in North American crude oil production makes a top tier energy logistics company like ours an increasingly important source of value for investors. And we are positioning ourselves to leverage our assets in midstream expertise. We continued to be enthusiastic about the prospects for MPLX. And as we mentioned before, we remain committed to positioning MPLX among the top MLPs and we intend to maintain an attractive distribution growth profile over an extended period of time. We continue to pursue opportunities that will support that long-term intent.

And now, I will turn the call over the Don Templin to review the financial results.

Don Templin - Chief Financial Officer

Thanks, Pam. As you recall, the historical financial statements of MPLX prior to the IPO in 2012 included the results of certain undivided interest pipelines that were not contributed to MPLX at the time of the IPO. In addition, certain of the tariffs were adjusted in connection with the IPO. As a result, there are a number of factors affecting the comparability of our pre-IPO financial statements and the current period’s results. Given these differences and consistent with the last several quarters, I will focus my comments today on MPLX’s actual fourth quarter 2013 results as compared to the projected results we have included in the prospectus that was prepared at the time of the IPO.

The waterfall chart on Slide 5 provides that comparison. The primary drivers for the decrease in our net income were lower throughput volumes on our pipelines partially offset by higher tariffs and the recognition of expired volume deficiency credits. While our crude and product pipeline throughputs were lower than projected, minimum volume commitments from MPC allowed us to maintain a stable stream of cash flow to MPLX to fund distributions. These deficiency payments are included in distributable cash flow in the current accounting period, but are classified as deferred revenue in the financial statements. Revenue is then recorded later when the credits are either utilized or expire.

Turning to Slide 6, distributable cash flow for the fourth quarter 2013 was $28.3 million compared to the $18.6 million estimate included in the prospectus. While the MPC deficiency payments, I just discussed, don’t immediately enter into the determination of income, they are included in determining distributable cash flow for the quarter. During the fourth quarter there were $6 million of deficiency payments from MPC that were not included in net income or adjusted EBITDA, but were reflected in distributable cash flow.

An offsetting $2.2 million of revenue was included in adjusted EBITDA resulting from recognizing volume deficiency credits that were generated prior to the fourth quarter and were either used by MPC or expired in the quarter. Distributable cash flow for the full year 2013 was $114.6 million compared to the $87.1 million estimate included in the prospectus. The most significant driver of that difference was the $18.7 million in volume deficiency payments that were received by MPLX as I just described.

Fourth quarter and full year 2013 maintenance capital expenditures were lower than the estimate, included in the perspectives primarily due to the timing of projects. In addition, earnings and distributable cash flow for the fourth quarter and full year 2013 were favorably impacted by the acquisition of the 5% interest in Pipeline Holdings that was completed in May of this year.

As Pam mentioned, our Board declared a cash distribution of $0.3125 per unit, which represents a $0.015 per unit increase over our third quarter distribution and a 5% increase over the prior distribution. The total cash distribution for the fourth quarter will be $23.7 million and represents a coverage ratio of 1.19 times. Our coverage ratio for 2013 was 1.3 times compared to our target coverage ratio of 1.1 times. Our coverage ratio will fluctuate from period-to-period primarily due to the seasonality in maintenance spending.

Slide 7 provides adjusted EBITDA and distributable cash flow by quarter for MPLX and highlights the stability of distributable cash flow over this time period.

Slide 8 shows at the end of the fourth quarter we had $54.1 million of cash. We also have access to a $500 million undrawn revolving credit facility to fund organic growth opportunities or acquisitions from either MPC or from third parties. With minimal debt our consolidated total debt to consolidated EBITDA covenant ratio is close to 0 at 0.1 times, well below the maximum allowed of five times and continues to provide great financial flexibility for the partnership.

In closing, Slide 9 highlights our distribution history since IPO and demonstrates our commitment to add value to unitholders. The graph outlines the consistent quarterly growth in our distributions amounting to a 19% increase over the minimum quarterly distribution of $0.2625 established at the IPO of MPLX. We believe the value proposition for current and perspective MPLX unitholders will continue to be compelling.

Now, I will turn the call back over to Tim Griffith.

Tim Griffith - Vice President, Finance and Investor Relations

Thanks, Don. As we open up the call for questions we ask that you limit yourself to one question plus a follow-up. You may re-prompt for additional questions as time permits. With that Adrian we’re prepared to open up the call to questions.

Question-And-Answer Session

Operator

Thank you. We’ll now begin the question-and-answer session. (Operator Instructions) And we have Theresa Chen from Barclays Capital on line with the question. Please go ahead.

Theresa Chen - Barclays Capital

Good afternoon.

Gary Heminger

Hi, Theresa.

Theresa Chen - Barclays Capital

Hi, on dropdowns, could you provide an update on the likely timing of the next transaction?

Pam Beall

Yes, Theresa, this is Pam. We haven’t provided any kind of guidance on timing. We did indicate at our December Investor Meeting that we do intend to make a drop sometime during 2014, during 2013 that the drop that we made was on May 1. So certainly we’ll be considering that the timing of the drop but we haven’t shared that information yet.

Theresa Chen - Barclays Capital

Okay. And then just how should we think about the size, is it reasonable that the next drop will be similar in size than the first drop of May?

Pam Beall

Well, Theresa we’ll take a number of factors into consideration as we determine the size of the drop. We don’t really need a significant drop in order to meet our cash distribution growth objective, but there too we really haven’t provided any guidance on the dollar amount that you should expect for 2014.

Theresa Chen - Barclays Capital

Okay, thank you.

Operator

(Operator Instructions) And we have no further questions at this time.

Tim Griffith - Vice President, Finance and Investor Relations

Okay, great. Well then we’ll wrap things up. We want to thank everyone for joining the call today and for the interest in – I’m sorry Adrianne is there a question in the queue.

Operator

Yes, we did have somebody. We have Richard Roberts from Howard Weil on line with the question. Please go ahead.

Richard Roberts - Howard Weil

Sorry folks. I guess I didn’t prompt in properly the first time, but just two quick ones. First, this came up on the MPC call this morning, but just wanted to follow up with you guys on sort of any thoughts around condensate opportunities in the Gulf Coast whether those investments would make sense for you guys or if it’s something that you are looking at? And then second, probably one for Don, if you could just maybe go through a little bit what was driving the increase in other revenues and income for the quarter?

Pam Beall

Yes, okay, it’s Pam. I will take the first question. When we had our Investor Meeting in December, we did cheer that MPC has a couple of condensate splitter projects that are actually in progress now, one at Canton and one at Catlettsburg and that’s based on the proximity to the Utica shale production. And at that time, Rich Bedell did mention that we are evaluating opportunities really for all of our Gulf Coast refineries as well and really we haven’t shared any more information than that, Richard. It’s certainly something that we are taking a look at. And those kinds of projects could be right for an MLP.

Don Templin

And Richard, this is Don. Your question I think was related to the $6.1 million in the waterfall chart. There is really – the biggest component of that is the recognition of the revenue related to the expiration of the credits for the volume deficiencies. So, on a 100% basis, that was $4 million. When you see it coming in distributable income it’s $2.2 million, but on a 100% basis, it’s $4 million. And then we also had some fees there related to our operatorship of Capline, which you will recall, we took operatorship of that on October 1. So those were probably the primary drivers of that number.

Richard Roberts - Howard Weil

Thank you.

Operator

(Operator Instructions)

Tim Griffith - Vice President, Finance and Investor Relations

Okay, Adrianne, no further questions?

Operator

No further questions.

Tim Griffith - Vice President, Finance and Investor Relations

Okay. Well, again we want to thank everyone for joining the call this afternoon and for your continuing interest in MPLX. If there are additional questions or points of clarification, Beth Hunter and Gerry Ewing will both be available this afternoon to take your calls. Thank you for joining.

Operator

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

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