MPLX LP (MPLX) CEO Mike Hennigan on Q1 2021 Results - Earnings Call Transcript

MPLX LP (NYSE:MPLX) Q1 2021 Earnings Conference Call May 4, 2021 9:30 AM ET

Company Participants

Kristina Kazarian - Vice President-Investor Relations

Mike Hennigan - Chairman, President & Chief Executive Officer

Pam Beall - Chief Financial Officer

Greg Floerke - Executive Vice President & Chief Operating Officer

Conference Call Participants

John Mackay - Goldman Sachs

Spiro Dounis - Credit Suisse

Michael Blum - Wells Fargo

Keith Stanley - Wolfe Research

Operator

Welcome to the MPLX First Quarter 2021 Earnings Call. My name is Amber, and I will be your operator for today's call. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session. [Operator Instructions] Please note that this conference is being recorded.

I will now turn the call over to Kristina Kazarian. Kristina, you may begin.

Kristina Kazarian

Thanks so much. Good morning and welcome to the MPLX first quarter 2021 earnings conference call. The slides that accompany this call can be found on our website at mplx.com, under the Investor tab. Joining me on the call today are; Mike Hennigan, Chairman, President and CEO; Pam Beall, CFO, and other members of the executive team.

We invite you to read the Safe Harbor statements and the non-GAAP disclaimer on slide 2. It's a reminder that we will be making forward-looking statements during the call and during the question-and-answer session that follows. Actual results may differ materially from what we expect today. Factors that could cause actual results to differ are included there as well as in our filings with the SEC.

With that, I'll turn the call over to Mike.

Mike Hennigan

Thanks, Kristina. Good morning and thank you for joining our call. Earlier today, we reported adjusted EBITDA for the first quarter of 2021 of $1.4 billion. Despite lingering challenges from the COVID-19 pandemic and headwinds in the business environment, we were able to grow earnings on a year-on-year basis.

As we mentioned last quarter, we expect an impact to our L&S business from the renewal of the marine contracts and equipment rate adjustments. Additionally, our G&P results also reflect some impacts from the severe winter weather, including higher energy costs and lower volumes.

We continue to identify opportunities to structurally lower our costs and drive efficiencies in the business. And our reported operating expenses for the quarter continue to trend down.

We're also maintaining strict capital discipline to efficiently execute our growth plans on a high return portfolio of investments. Our focus on strict capital discipline combined with growing EBITDA has allowed the business to generate excess cash after self-funding our distribution and capital program.

We remain committed to prioritizing return of capital with over $900 million returned to unit holders this quarter through distributions in unit purchases. Furthermore, we believe our earnings growth, combined with the desire to hold debt flat will result in a reduction in leverage over time.

As we look ahead through 2021, we expect to generate excess cash after capital investments and distributions as we had planned to do. The availability of COVID-19 vaccine provides hope for the return of global transportation fuel demand and economic recovery. Even though many uncertainties still exist, the world's need for reliable, affordable and responsibly produce energy remains important.

We believe we can continue to meet this need through our strategies that will allow us to successfully adapt to the evolving energy landscape by shaping our asset portfolio to meet the challenges and opportunities created by the energy evolution.

If you look at slide 4, I'd like to provide some comments on our commitment to ESG. Last quarter, we discussed the importance of setting objectives for the organization to drive continuous improvement on ESG.

Our commitment to sustainability positions us to deliver strong results in this space, including lowering the carbon intensity of our operations and products, improving energy efficiency and conserving natural resources, while using innovative technology to do it.

We've established a program to lower methane emissions at our natural gas gathering and processing business includes a goal of reducing our methane emissions intensity to 50% below 2016 levels by the year 2025. A broader vision of sustainability emphasizes delivering essential energy products and services to the world in ways that create share value for all our stakeholders.

Now let me turn the call over to Pam to discuss our operational and financial results.

Pam Beall

Thanks, Mike. Slide 5 outlines the first quarter operational and financial highlights for our logistics and storage segments. Segment EBITDA increased $24 million year-over-year, despite headwinds from a reduction in our marine transportation fees and lower throughput on some of our pipeline equity method investments, the team's focus on operating expense reductions and business efficiencies provided support for the segment.

Additionally, all terminal throughputs were lower compared with the first quarter of 2020, pipeline volumes were in line with the same period last year. We continue to make good progress on our strategies to create an integrated crude oil and natural gas logistics system from the Permian to the Gulf Coast.

The Wink to Webster crude oil pipeline, in which MPLX has an equity interest, continues to play segments in the service. And we expect this activity to continue throughout the remainder of the year. As segments are placed in service, we expect EBITDA contributions from this project to ramp up throughout 2022.

Consistent with our focus on projects with minimal return risk, the pipeline system has 100% of its contractual capacity committed with long-term minimum volume commitments. On the Whistler natural gas pipeline, commissioning activities on certain segments are underway in preparation for the project to startup in the third quarter of this year. Similar to the Wink to Webster project, Whistler is backed by long-term minimum volume commitments and we expect EBITDA contributions also ramped up through 2022.

Finally, we continue to work towards an in-service date in the fourth quarter for the natural gas liquids takeaway solution, which provides long haul NGL service from the Permian to Sweeny, Texas. The project will have an initial capacity of 125,000 barrels per day with the potential to expand up to 350,000 barrels per day.

Before we leave the discussions on our L&S segment, I'd like to provide an update on certain contracts between MPC and MPLX. MPLX continues to work alongside MPC as it progresses its portfolio of renewable projects, including potential opportunities to expand our logistics capability to deliver renewable diesel feedstocks.

Since renewing the marine contract with MPC in January, we continued to receive questions around contracts for pipelines that were dropped into the partnership in 2012 and are coming up for renewal. But we continue to emphasize many of the assets MPLX operates are fit for purpose for MPC’s business and are integral to the MPC refining system.

Furthermore, we believe our crude and product pipeline contracts are at market rates. As in the past, we fully expect MPC to renew its contract with MPLX, as they mature over time, and for our revenue from these contracts to continue to reflect the strong integrated nature of the underlying business.

Now moving on to our gathering and processing business on Slide 6, we provide first quarter operational financial highlights for this segments. For the first quarter of 2021, gathered volumes were lower than the same period last year across our footprint. Furthermore, process volumes were down in all regions, except the Marcellus. In the Marcellus, process volumes increased 3% and fractionated volumes increased 7% relative to the first quarter of 2020.

The overall operating statistics include the impacts of severe weather during the quarter in the southwest. We estimate an approximate $16 million impact to our business from the winter storms, with the majority of that impact reflected in our gathering and processing segment results. This impact included reduced volumes at some of our facilities as well as higher energy costs.

Gathering and processing segment, EBITDA increased $34 million from the first quarter of 2020. This was supported by higher natural gas liquids price and lower operating expenses, helping offset the impact of lower volumes, as well as the costs incurred due to the severe weather.

In line with previously announced efforts around portfolio optimizations, we did close on the sale of our heavily to plant in Corpus Christi, Texas in mid-February. In the Marcellus, we've begun commissioning activities for our Smithburg 1 processing facility, with a targeted in-service date in the third quarter.

Now moving to our first quarter financial highlights on slide seven, total adjusted EBITDA was $1.4 billion and distributable cash flow was $1.1 billion. MPLX grew both EBITDA and distributable cash flow compared to the first quarter of 2020.

Our distributable cash flow generation provided strong coverage of 1.5 times for the quarter. And we paid $754 million in distributions. Furthermore, MPLX continued to self-fund all capital investments in distributions to unitholders with $277 million of excess cash will remain, after these activities for the quarter.

In addition, we returned $155 million to unitholders, through the repurchase of over $6 million publicly traded common units under our unit repurchase program. As of March 31st, total repurchases of $180 million have been made since the program's inception was launched in the fourth quarter of 2020.

Even continued uncertainty facing the economic recovery, we were extremely disciplined in our expense and capital spend for the first quarter. This caution helps to drive the significant amount of excess free cash flow, generated during the quarter.

Looking forward, we've not changed our guidance on growth capital investment of $800 million for 2021. This implies a higher run-rate of capital spend for the remaining quarters.

As we increase our growth capital project related work that tends to ramp-up through summer months. We also expect to see a meaningful increase in the projects that are expensed.

Subject to many factors that influence timing of project and maintenance spend. This amount could be sequentially higher by as much as $75 million in the second quarter, relative to the first quarter spend.

With our continued capital and expense, discipline and rose in EBITDA, we expect to continue generating excess cash flow for 2021, providing financial flexibility to pursue value creating opportunities for our unitholders, including unit repurchases.

We intend to remain flexible with our unit repurchase program and expect the pace of unit repurchases to be informed by market conditions, the business environment, the amount of excess cash generated in prior quarters, among other factors.

On slide six, we provide a summary of key financial and balance sheet information. And I want to highlight that the inflection to generating excess cash and returning capital to unitholders has not compromised our focus on maintaining a strong balance sheet.

We ended the quarter with a leverage ratio of 3.9 times, approximately $2.7 billion available under a $3.5 billion bank revolving credit facility, and $1.5 billion available on our intercompany facility with MPC.

We intend to maintain our investment grade credit profile. And as Mike mentioned earlier, hold our debt flat, restrict capital discipline, growing EBITDA and stable debt we believe leverage will decline overtime.

So now let me turn the call back over to Kristina. Thanks.

Kristina Kazarian

Thanks, Pam. As we open the call for questions, we ask that you limit yourself to one question plus the follow-up. We may re-prompt for additional questions as time permits. With that, we will now open the call to questions. Operator?

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Jeremy Tonet with JPMorgan. Your line is open. Please go ahead.

Unidentified Analyst

Hey, good morning, guys. It's James [ph] on for Jeremy. Just want to start on the buybacks. It seem like, the strong progress is made through the first quarter. I’m just wondering any color you can share on the cadence for the rest of the year, or if there's any bogeys or what factors you look at to allocate capital to buybacks going forward?

Mike Hennigan

Good morning, James, this is Mike. On buybacks, the best guidance we can give you, I tried to say this a couple times is, it's going to be a dynamic process for us, not a program that we just set and walk away from. So, we've tried to be transparent that we were driving to excess free cash flow, we achieve that, and we've set back in the latter part of 2020 and into 2021.

So the way we're going to look at it is each quarter as the market moves, and we have more intelligence about the market, the unit price, the outlook, et cetera, et cetera, we're going to look at what's the best way to deploy that excess cash. Buybacks is, obviously, something that we prioritize in the recent terms, especially since we're trading at the yields that we're trading at, but we have all the levers available to us, buybacks, distributions, debt, capital, all of those avenues are available to us. And as a management team, we're going to continue to talk about things through the quarter, and continue to make what I call real-time decisions or a dynamic process that's trying to be receptive to the market conditions at the time and trying to provide the best unit-holder value. I hope that gives you a better feeling as to how we're thinking about the process.

Unidentified Analyst

No, it does, and I appreciate the color there. Maybe just for my follow-up, shifting over to the renewable side. You mentioned the renewable diesel opportunities in prepared remarks. Just wonder if you can elaborate on how far out on that if there's any capital allocate to that this year? And then maybe just a second part of the question, looking at carbon capture. If you foresee the 45Q tax credits as being sufficient to incentivize capital allocation there?

Mike Hennigan

Yeah, James, I'm now going to let Tim [ph] jump in with some more detail. But I'm just saying in general, we're obviously aware of the energy evolution that's occurring. There's a lot of opportunities that people are exploring, Tim and his team are looking at a lot of different things. So I'll let him give some color here.

Unidentified Representative

Well, Jeremy [ph] on the 45Q credits, I guess, it kind of depends. In general, the 45Q, it is the primary incentive for carbon catch, and sequestration. And if you got the right environment, it may drive a competitive project. But if you look at most of those out there, it requires stacking of incentives. And sometimes variable cost depending on the capture, transportation and sequester costs come into play.

So if you have projects with low capture costs, and minimal transportation and some favorable geology, well, then that might cover it. But other projects would require things like LCFS uplift for certain products, in order to hurdle those higher costs. So again, it kind of depends. We do expect the government policies a little further define the regulatory framework. And it's possible that there could be additional incentives that come down the pike.

Unidentified Analyst

Got it. That's very helpful. I'll stop there. Appreciate the questions.

Mike Hennigan

You're welcome.

Operator

Our next question comes from [Indiscernible] with UBS. Your line is open. Please go ahead.

Unidentified Analyst

Good morning and thank you for taking my question. So I would like to follow-up on that question, on renewable investments. Could you maybe provide more color on the scope and potential returns from the investment that you are looking at? The renewable investments? Thank you.

Mike Hennigan

Yes. So we haven't guidance to a detailed point of disclosures on the things that we're looking at. I think the takeaway that you should think about is there's a pretty myriad opportunity set in front of us now. Tim, just mentioned, carbon capture is one thing that we're looking at. Pam mentioned renewable diesels obviously, being advanced by MPC. Lowering the carbon intensity of products is going to continue to be a theme that plays itself out there.

So, we haven't given any detailed disclosures, other than to say that we're cognizant of the environment that we're in. I like to say, people were talking a lot about hydrogen at one end of the spectrum. I think that's a little further out in time. But it is something that we're evaluating as we go forward. Now MPC is in the business of hydrogen. So that's something that we're very close to.

At the same time, on the near-end, as Pam mentioned, renewable diesel is on the front-end. As Tim just mentioned, carbon, any types of activities around there, are all front and centre for us. However, we're going to make sure that when we advance the ball in there that we have a really strong return. So we are going to maintain capital discipline, not jump at something that just appears to be good. We're going to make sure that, at the end of the day it gives us a good return, and provides value to the unit holders.

Pam Beall

Hey, [Indiscernible] it's Pam. I just wanted to jump in and add to Mike's comments there. The other thing that that we should talk about is the fact that we're very bullish on the role that natural gas is going to play, even as we go through an energy transition. So, we continue to look for opportunities to participate in the natural gas value chain downstream of the operations that we have today.

And as Tim talked about, the some of our pipe pipeline activities, and I don't know, Tim, if you wanted to add anything on mentioned like the natural gas storage investment through our joint venture. So, we're looking for those kinds of opportunities as well, because we think that natural gas is going to be an important part of energy solution well into the future.

Unidentified Analyst

Thank you. And what has been the latest rich turnaround your puts in the northeast that crosses bowling towards down a little bit in 1Q versus 4Q. Do you expect the recovery throughout 2021?

Mike Hennigan

I’ll let Greg take that one.

Greg Floerke

It’s Greg Floerke. With regard to the northeast outlook, NGL prices, and more currently, gas prices are supportive of additional development in the northeast. Rich gas drilling remains focused primarily in the Marcellus and more of the dry or lean gas drilling in the Utica.

We do see seasonal -- depending on the season, and particularly the winter time and maintenance schedules, we do see fluctuation in volume quarter-over-quarter but in general, the Northeast is a key basin for us. And we think NGL prices including the strip price and current inventory levels are supportive of potentially more rich gas drilling in the region.

Unidentified Analyst

Thank you and have a great day.

Mike Hennigan

You're welcome.

Operator

Our next question comes from John Mackay with Goldman Sachs. Your line is open. Please go ahead.

John Mackay

Hey, good morning. Thanks for the time. Just wanted to circle up on the buyback, understand it's a variable number that will move around quarter to quarter, depending on how much cash you have or leftover. Just curious, as to how Javelina proceeds were kind of rolled into that number over if you see the 150-ish you did this quarter as being kind of a healthy numbers of the base business can generate?

Pam Beall

Yeah, John thanks. This is Pam. I'll take that question. So, we talked about the fact that we actually generated $277 million of excess cash after funding the distributions in our capital program. That surplus cash did include proceeds from the Javelina sale. We did deploy $155 million of that into unit repurchases. But we also highlighted that, the first quarter, we were extremely conservative on all forms of cash that we spent, just given some of the economic uncertainty as we move through the beginning of 2021, not knowing how the pandemic would play out. So we do expect to see higher capital in subsequent quarters, and also some increase in expenses related to projects that we do that are expensed.

And as I've highlighted, in some prior calls, some of our maintenance activities as well highlight API 653 tank work, we expense that work, other companies capitalize it, so as we move through the year and maintain our assets, we'll have some increasing in costs related to those activities. So didn't want people to get so focused on the high amount of excess cash that we generated during the first quarter.

John Mackay

All right, thanks. That’s helpful. Maybe to follow up on that Pam, just a last comment you made. I guess that's -- that's the $75 million of incremental costs you are referencing earlier. And I guess, it sounds like that's not part of necessarily the overall CapEx budget. That's the way to think about it.

Pam Beall

Yeah, that's correct John. Those would be -- that would show up in our operating expenses.

John Mackay

Okay. Great. And maybe if I can just squeeze in one more. Look, Utica has been kind of a lot weaker than we've hoped for, for the last couple of quarters. Just curious, if you can give us give us any more specific thoughts and what's going on with those assets. Maybe if there's been a -- I don't know anyone off that could return there. And then any of your efforts on optimizing that footprint whether you've talked about a little bit in the last call?

Greg Floerke

This is Greg. With regard to Utica, as I mentioned, most of the focus there over the last few years has been on in drilling the dry Utica areas. And we did see a quick ramp up in that. And we saw peak levels probably about a year ago. The rich Utica has been on a path where new drilling and new wells have not been sufficient to offset the normal decline of existing wells. So, we're hopeful that the Utica, the current NGL prices will actually insert more drilling in the rich area of the Utica. But the larger impact that you've seen is, where we see the largest swings is in the dry gas area. Its largest volume and if there's a timing issue on drilling, that shows up in a larger volume and larger percentage way, we're still bullish on Utica dry gas drilling. And you're hopeful that we'll see. You continue to see good progress in terms of growth in the future there.

John Mackay

Okay. Thank you for the time.

Mike Hennigan

You're welcome, John.

Operator

Thank you. We'll now go to Spiro Dounis of Credit Suisse. Your line is open. Please go ahead.

Spiro Dounis

Hey, good morning, team. Mike, last quarter you frame 2021 EBITDA with one of your banks in the river analogies. And I think – you kind of put in a range of 4.9 billion to 5.3 billion, just annualizing some relevant 2020 quarters? I know, you don't give official guidance, but curious a few months in now, you still feel like that's a relevant range and if you're leaning kind of heavily in a direction there?

Mike Hennigan

Yes, Spiro, it's Mike. So the main reason that we don't try to guide to that is, we don't have control the volumes that come out of the system in general. We make our best guess at it. I think you're referencing, last quarter, Pam gave a little bit of a – of the banks of the river, and that is how we think about it. So, we're obviously happy when you know, we're seeing the markets the same way that the upstream side of the business does. But for our biggest challenges, we just don't control it. So I'll tell you, we keep a look at those things. We think about scenarios.

And then we step back, and we concentrate on the things that we do control. So, we've had a lot of emphasis recently on cost reductions. And I think you're seeing that in our – in our earnings year-on-year. At the same time, we're very cognizant of, what are the scenarios that can play out for cash? And like, a couple of the questions that were asked earlier is, we're evaluating how the capital is going to play itself out through the year. As Pam said, we're still committed to that guidance, Tim and his team are evaluating whether there's economic support for us to enable some of the projects.

At the same time, we're going to keep the – the discipline pretty high on that, if it stays high, and we don't want to execute on those, we'll give that a little bit of time to percolate some more, and then use the cash for the other levers that we have. So – so you're right, in that, we think about scenarios, and we think about, what if everything goes our way? And then, we also think about, what if things don't go our way? I mean our goal Spiro is to try and be as transparent, to the market as we can.

We try and talk about not just the good things, but the risks that are out there. We've said, we have two risks that, people are very aware of, example, and what's going to play out in that regard. Again, we don't control it, but we try and scenario plan around it to sort of high plains pipeline is another risk that we have out there that, again, we have our opinion of the way it's going to play itself out. But we don't control it.

So that's kind of the process going back to the very first question of how do we think about this – this excess cash, I think we're in a good position, it's the place we want it to be, where we have these choices and levers. And then we try and take our best inputs as to all the information we have, at the time, we see how the market plays itself out. Obviously, everybody's pretty excited about, the rollout of vaccines and the impact that that's starting to have on the economy. And, you we are too, at the same time, we're still, gasoline demand in the US is still less than it was pre-pandemic, roughly 5%, somewhere in that range.

And then it varies regionally, it's still lower in the West Coast that was, impacted more by the pandemics and say, some of the other regions. So, we're just like everybody, have tempered optimism towards recovery. But at the same time, we just got to be careful about the data. We don't want to get in front of ourselves. And I think you hit it on the head, I've been trying to explain this concept of scenario planning and some probabilities and then we're just trying to make the best decision as we can, on a real-time basis.

So I hope that gives you a little more flavors to how we're thinking about it. We don't control that exact up, that upstream number. We watch it. We trend. We talked to our customers, et cetera, et cetera. And then – and then the reality just like everybody, those companies are doing the best they can on a quarter-to-quarter basis just like we are. Does that help you at all?

Spiro Dounis

No. I guess, Mike appreciate the all the color there. So understood. Second one, just on renewables again, sorry, keeping an eye on this, but just curious how you're, you know, I know it's early days, but curious how you're going to approach capital allocation, I guess. And I think about the blueprint there, I guess what I'm wondering is to the extent you've got competing conventional projects versus renewable projects, and they more or less have the same return profile, this tie goes to the renewables. Are you looking at those projects through a different risk lens? And curious if this is an area where we could see you do more sort of JV opportunities with established players out there?

Mike Hennigan

Yeah, I think you hit it on the head, ties would go their way, we are conscious that over time renewables are going to be a bigger part of the energy landscape. So there's no doubt that we're conscious of that. The pace that that's going to occur and the economics behind how that occurs is still up in the air. Tim mentioned, once the specific project that people are spending a lot of time with, but there's many on the horizon right now.

I would say that, the list of things that we're looking at is pretty long, but ready to execute today we're still evaluating some of these things. So, I think you hit it on the head though, as far as where would we invest, we want to try and put our capital into an area that is going to grow over time. We do believe that the energy evolution will continue to occur over time. Some of the areas I think are a little bit ahead of its time as far as the rhetoric. Some of the areas I think, are very current.

So, all those types of things, the way you described it, I think, is exactly the way we think about it. And then, like I said, just what we were saying earlier, is even an individual project, we'll start to talk about some scenarios around it. You hit a really important point as well, what are the risks around it? And what's the term of it? And how much support do we have for? And how many customers? And what's the credit capabilities behind it? All those things come into play. So I like to think that our job is to have a very robust process, and be very cognizant of capital that we could return the unitholders if we chose to deploy it in a capital spending that we got to feel really confident that it's going to deliver a lot of value.

So that's why -- if anything we're trying to leave you with, we raised the bar on capital discipline. We're trying to be as cognizant as we can of the market as it evolves. And at the same time, we're in a nice position to have some levers to deploy cash in a lot of different ways.

Spiro Dounis

Great. That's all I have. Thanks Mike. Thanks, Pam.

Mike Hennigan

You're welcome, Spiro.

Operator

Our next question comes from Michael Blum with Wells Fargo. Please go ahead. Your line is open.

Michael Blum

Thanks. Good morning everyone. Maybe just to stay on this topic a little longer, so just to understand it a little better. So you've got your sort of big three mission projects that you outline. Beyond those, it sounds like there's not going to be a whole lot necessarily in terms of larger size projects on the midstream side. And then on the renewable side, it's TBD, but it sounds like all being equal, those will take more time to develop. And so therefore, the CapEx should probably trend lower at least in the near term looking at 2022 and beyond. Just want to know if that's the right way to kind of think about it?

Mike Hennigan

Yes, Michael. I'd say, you're in the right church, whether you turn out to be in the right view or not, time will tell. I think, we are describing it just very much the way you did is. There's a lot of projects that the team are looking at, maybe more bold on lower capital, higher return, as opposed to, like you said, The Big Bang, that gets a lot of press. But we're very happy with the big projects that we've done, the team -- we have MVC protection behind the higher capital deployment ones, and the NGL project turned out to be a real good project for us, Tim, and the team put together a nice lower capital solution for our customers. So that's worked out well.

So yeah, right now we're looking at what's the best return projects, they may be smaller bits of capital. As Pam said, right, at the moment, we're still feeling that that capital guidance that we've given is good. As we progress through the year, it looks like things are going to take a little longer than, we'll be a little bit under that. And that's kind of what we said, last quarter as well. So we're trying to give our best transparency, but I think you've described it well. It's not that we're opposed to doing something of a larger nature, if it comes to fruition, we're not opposed to that, we're not opposed to looking at anything that creates a lot of value. But in the short term, having capital discipline is a higher priority, lowering costs is a higher priority, generating increases in the amount of earnings that we establish is kind of where we're putting a lot of our focus.

Michael Blum

Thanks. And then I know that another part of the plan has always been portfolio optimization, particularly on the GMP side of things. And I know that that market has been pretty slow, in the last bit of time, wonder if there's any change that you're seeing?

Mike Hennigan

There hasn't been any change to date, Michael. But as you can see gas prices are now close to $3 on the benchmark. So things are looking up, Pam said it earlier, probably one of the biggest things that we've debated with the sell side in the buy side for a while, is our natural gas business. Pam mentioned it earlier, we think natural gas will be an important part of this energy evolution over time. We've kind of defended our natural gas position. When people have questions a lot of, why are we in this business, I think people are starting to see a little bit more of the stability that we talked about and some of the resiliency in our cash flows. So I hope people are seeing a little bit of what we've been thinking for a while.

And then it's going to take a little bit of time. As mentioned earlier, and Greg commented on it, rigs are starting back a little bit more on the oil side, now that we're at $60 oil, so you're seeing rigs start to come back in that area. Natural gas will expect that to occur over time as well, albeit in a new dynamic, where producers are going to be a little bit more stringent about managing their cash flows. But I think in the long-term, we still like the position we're in and we like the business that we have. We're hoping the market has seen the resiliency that we've kind of talked about, and haven't had as much of a chance to display it. But the pandemic has given us that opportunity to show, year-on-year earnings growth in in 2020. And we continue to show that so.

So hopefully that gives you a picture of what we're trying to do. In the meantime, I've tried to explain, quarter-to-quarter we can continue to evaluate the market, evaluate the projects. I think you said it well, we don't have a major one that we're ready to announce at this point, but we're looking at everything. So we spend a lot of time looking at the portfolio. Right at the moment, there's nothing on the front burner, as far as the question that people been asking us about divestments. So we don't have anything on the front burner. And the main reason I say that is, we'll like our assets, they're generating free cash, I'm a big believer in our assets have to generate free cash and the assets that we think are challenged, we'll put a little bit more attention there. But in the meantime, while they generate free cash, they're contributing to the partnership.

So I think that's a big key, we're not forced to do anything. I use the term we're not giving any assets away. So, if we got a value that we thought was appropriate to create value for the unit-holders, and we would execute on it. But we haven't seen that today. We've been very open about that. We've run a few processes. And at the end of the day, we have not seen things that that we think would be of the value of us holding the assets ourselves. I hope that helps.

Michael Blum

Yes. Thank you very much.

Mike Hennigan

You're welcome, Michael.

Operator

The last question comes from Keith Stanley with Wolfe Research. Your line is open, please go ahead.

Keith Stanley

Thanks. Good morning. I just want to first clarify the operating cost commentary again. So, was it a $75 million increase quarter-over-quarter in Q2? And that's kind of a good run rate from there or our costs just a little inflated in Q2, and then relatedly talking to release again, to being committed to lowering the cost structure? You've already done a lot. Should we read that as there's potential for another sort of meaningful round of cost reductions, or is most of the low hanging fruit already done at this point?

Pam Beall

Yeah, Keith its Pam, I'll take that. So, just to clarify that $75 million increase that was a sequential increase from first quarter to second and especially around some of the projects that we do that are expensed instead of capitalized. Now, we did make a meaningful reduction in the total costs, operating costs from 2019 to 2020 and those continue in 2021. In fact, we mentioned on one of our previous calls that some of our workforce reduction activities didn't take place until the fourth quarter.

So, we had talked about $200 million commitment that we knew we could deliver on $200 million of operating cost reductions. And then we said the, the benefit of the lower workforce would be reflected in 2021. So, we're definitely seeing some of that, as you know, here in the first quarter, and we'll see that throughout 2021.

And as you look at 2021, compared to 2020, our operating expenses will be lower. It's just that sequentially in because we had generated so much cash in the first quarter and our spending was so low. In fact, I haven't seen our capital investment this low on a quarterly basis since 2014, before we acquired the natural gas business, so I just didn't want people to think that it was going to remain every quarter that long. So, just trying to provide a little more color there. I hope that's helpful Keith?

Keith Stanley

It is. And the second part just on -- if there's more to come, that's meaningful on cost reductions, just given you, you guys already done a lot on that front?

Pam Beall

Yes, I would just say on the margin we're going to continue to focus on managing the business with as Mike likes to call it. It's our mantra, strict capital discipline and strict expense management.

Mike Hennigan

Yes, Keith, I'll just add a little bit to that. One of the things your question is very similar to a lot we get -- we have the sports analogy would inning game or what quarter of the football game, et cetera. I like to think about it is every game, if I use the football analogy, every game that we approach, we're going to ask ourselves is there areas that we can still challenge ourselves more in? But we're clearly -- we played the first half if you want to use that term and we're evaluating is there other opportunities, as everybody knows, there's diminishing returns ultimately, there's only so much you can challenge yourself, but I'm hoping that we're leaving the market with every game plan, every time that we think about this, we're going to be asking ourselves that question because the market continues to evolve. And our cost structure is something that we should not put the playbook down on and say that's behind this now, it's something we're going to continue to watch, continue to challenge.

I do give the team a lot of credit, when I asked everybody to look at this concept of changing the cost structure, and I think the team's done a really nice job of looking at it. And there's some areas that we're still questioning and to be perfectly frank, some areas you go in, you think you can do X, and it has turned out to be y, plus or minus. And then the same thing in some other areas, you might do a little better than you're originally thinking, you might do a little worse.

But the point being is you keep challenging, to keep looking at it, keep asking yourself the question, is there an opportunity there? I personally, I'm a cost talk in a lot of ways. It's -- to talk about revenues, but dollar revenue and $1 of expense, get the same dollar to the bottom line. So, it's something that is top of mind for me all the time. So hopefully, it'll stay in focus for you guys to see how we progress on that.

Keith Stanley

Great. That's helpful. Second question, just you guys have talked and you always do about growing EBITDA in the business. And then you also address just the 2012 pipeline assets and contracts pretty clearly. So when you look out over the next, I don't know, call it two, three year, what are the main levers you think that grow EBITDA of the company, or are there any notable headwinds or things to be mindful of beyond the marine contract this year? That could be headwinds over the next call it, two to three years.

Mike Hennigan

Yeah. Keith, I guess one of the things that we hope the market likes about us is we try and be as transparent as we can, especially on headwind. So, the two that we said, are very much out there that are material, it’s the dapple situation and it's a sort of high plains pipeline. To serve high plains, we thought was resolved, it's kind of gotten bounced back now, again, so it's back out on the table. So those two issues are material in nature. So those are potential out there. Now, again, people ask us, what do we think is going to happen on? Again, we don't control that, we watch the court proceedings etcetera just like you guys do. But those are out there. I think Pam was very transparent when we said, the marine contracts was going to be a significant change to us, roughly $100 million. And I think, we gave everybody advance notice on that. So we will continue to be transparent on contracts. I liken it to very much to the questions we used to get on the G&P business all the time, people are really worried about that.

On the contract side, we don't have anything on the horizon that we need to make people aware of. In fact, if anything we're trying to make the relationship between MPC and MPLX, more of a win-win over time. And the way that we can integrate and try and drive value for both entities is really the main goal. So if we see something that we think is an issue that we need to make aware of, then we'll certainly disclose that. And like I said, Pam, I think it's done a nice job of that in the past. And that'll continue to be our mantra. So we don't want to surprise the market with anything out the Apple goes. I think everybody's watching to see how that plays itself out as an example. And if there's something else that we think is a headwind, we're certainly going to make you aware of it.

Keith Stanley

Thanks very much.

Mike Hennigan

You're welcome.

Operator

That was our last question.

Kristina Kazarian

Perfect. Thank you. So, thank you everyone for joining us today. And thank you for your interest in MPLX. Should you have additional questions or would like clarification on any of the topics discussed this morning, members of our team will be available to take your calls. Have a great day.

Operator

That concludes today's conference. Thank you for participating. You may now disconnect.