MPLX: A Special Investment - Part 3

May 14, 2022 4:46 AM ETMPLX LP (MPLX)42 Comments33 Likes
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Summary

  • MPLX's vision shifted from a conservative posture to growth that likely lowers the level for any special distribution.
  • Management continues to include a special distribution within its vision.
  • With a cheaper stock price, repurchasing stock seems to be slightly higher in priority.
  • The stock purchase authorization now in place will likely run out in the next few quarters.

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Anton Vierietin/iStock via Getty Images

Since last fall, MPLX (NYSE:MPLX) has generated enough extra cash to pay a supplemental distribution. Last year, it wasn't small being near $0.60. Following progress toward another supplemental is important for investors. MPLX now pays a regular distribution of $0.705 per quarter. Comments by management at the last call once again suggest a special is coming, but for how much and when?

The March Quarter Results

The 1st quarter prepared remarks summarized a few financial parameters including the following:

We delivered adjusted EBITDA of $1.4 billion, which was up 3% from the prior year, and we returned over $850 million of capital to unit-holders through distributions and unit repurchases.

Continuing, "Pipeline volumes were up 4% and terminal volumes were up 13% year-over-year." But, benefits from "higher throughputs were largely offset by environmental costs incurred in the quarter."

MPC, a major customer of MPLX, experienced three outages, two on the Gulf Coast and one at Garyville. These had meaningful, but undisclosed, negative impacts on MPLX's business.

Future Investment for Growth & Contracts

MPLX plans to spend an additional $300 million in growth capital this year over last year. More detail was included by management for investors. Most of capital will be spent "at opportunities in the Marcellus, Permian and Bakken" for debottlenecking operations.

A large of part of the investment is targeted at the Permian basin natural gas transportation. The Whistler pipeline expanding to 2.5 billion cubic feet per day is one of the key projects. A fourth processing plant is now ramping with the construction of a fifth in progress. In the LNG markets, the company plans more investment though details are unknown.

Mike Hennigan, Chairman, President & Chief Executive Officer, commented on an important long-term contract with MPC. He said,

Let me also highlight several pipeline contracts that we have with MPC, which are coming up for renewal. Because these pipeline systems are so critical to both MPLX's stable earnings and cash flows in MPC's operations, we are in the process of finalizing agreements to renew and extend them for 10 years and we'll finish papering them up in the next several weeks...

Could this be an area of growth with the inordinate high pricing of natural gas?

Growth is coming; it is just unclear when and how much.

Accumulated Cash 4th & 1st Quarter

Any special paid depends on "extra cash" not paid out during a year. The company just reported the second quarter since the last supplemental was paid. A summary of the cash flow follows beginning with the 4th quarter.

Cash Flow Summary

MPLX 4th Quarter Presentation

Cash used for stock repurchase was $160 million and not included in the slide. The net cash left for a special stands at $200 million. Note: We missed that subtraction in the article, "MPLX: A Special Investment - Part 2."

Continuing with the 1st quarter cash flow slide shown next.

Cash Reconciliation

MPLX 1st 22 Cash

For the March quarter, John Quaid, CFO, stated, "Our base distribution was $758 million and we did a $100 million of unit repurchases. So effectively, have looked at where we were there. . .a supplemental distribution is certainly a tool for us as we think of return to capital." The company spent the entire cash for ordinary distributions and stock repurchases. Thus far for the first two quarters, the company has accumulated $200 million.

2022 Factors, Growth & Cash Usage

Again, at the 4th quarter conference, MPLX announced that its plans for 2022 included increasing capital expenses from $600 million to $900 million. Management also noted that it continues to target a leverage ratio of 4x or less, which ended in March at 3.7, under range.

Management also noted,

As we look forward in 2022, these project-related expenses could be as much as $50 million higher for each of the remaining quarters of the year as compared to the first quarter, as we complete this work over the balance of the year. the Permian, obviously, a big growth area for us right now...

In the first quarter, MPLX spent $275 million. When adding the extra $50 million, the total for the rest of year equals approximately $300 million.

Past quarterly EBITDA performances for one year anyway are included next.

MPLX 1st 21 2nd 21 3rd 21 4th 21 1st 22
EBITDA (Billions) $1.4 $1.4 $1.4 $1.4 $1.4

EBITDA for the past five quarters is absolutely flat. A level of growth is coming from project startups, but again the when or how much isn't known.

Committed to a Special?

During this last call, management clearly stated that supplemental distributions are part of management's plan to distribute or return capital to investors.

Last year the company paid out $600 million for its special distributions (slide 3) and spent $450 million for stock repurchases. It has $200 million left in its authorized repurchase plan. During the last two quarters it has used approximately $260 million.

MPLX is at the crossroad. Will the company repurchase and finish the authorized plan or save a few hundred million for a special? It seems clear to us that with the extra $50 million per quarter in capital expenses, the best that investors might expect is $400 million or 2/3rds of the special paid last year. This requires that the company ceases to repurchase or slow down at least. It appears that a smaller supplemental distribution will come in November or early next year. With the stock price lower ($30) in recent trading, it seems that management might lean toward repurchase rather than a special with any extra cash. But it also appears that something will be paid. Even without a lucrative special distribution, MPLX is a compelling investment in the high 20's or low 30's with its secure $2.80 distribution.

Risks

The risk in expecting a larger sized special distribution comes with management's shift in vision from conservation to a level of growth. We suspect that the growth expectation might be meaningful with the company repurchasing stock in the middle 30s. It wasn't cheap unless significant growth can be expected, something to be determined.

Risks with respect to the business are minor unless the world experiences another virus shutdown such as in 2020. Except for an occurrence such as this, we expect another special year though most likely at 1/2 or less than last year. A level of special cash to do so appears available.

This article was written by

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I have been an investor for several decades enduring the 87 crash, 2000 crash, and 08 crash. I do use trading systems developed with TradeStation. I have enjoyed the rewards from both buy and hold and trading. My professional experiences includes several decades as a process control engineer. I hold a JD from an eastern law school.
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Disclosure: I/we have a beneficial long position in the shares of MPLX either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: We sell calls above $35 strikes.

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