How dependent is MPLX on its parent, Marathon Petroleum Corporation?

Very dependent. MPC generated about 82.2% of 2012 revenues and other income, excluding joint-tariff volumes treated as third-party revenue. MPC also owns the general partner, a 71.6% limited partner interest, and all incentive distribution rights, and it holds the remaining 49% of Pipe Line Holdings. MPC's minimum volume commitments and the contractual suspension and termination rights are central to the investment thesis, so investors should track MPC's refinery runs and its midstream strategy closely.

Is the distribution covered by cash flow?

The filing does not yet show a full year of distributable cash flow as a public company. The IPO stub period (October 31 to December 31, 2012) produced $16.7 million of Distributable Cash Flow, against a prorated distribution of $13.3 million declared for that period. The $0.2625 per unit minimum quarterly distribution requires about $19.8 million per quarter, or $79.2 million annually. Coverage depends on sustained minimum volume commitments, tariff indexation, and the timing of expansion capex. The partnership is also not legally obligated to pay any particular amount.

What is the growth strategy?

Growth comes from three sources: organic projects tied to MPC and third-party volume growth, drop-down acquisitions of MPC's remaining 49% interest in Pipe Line Holdings and other midstream assets, and third-party acquisitions. The 2013 plan includes about $109 million of expansion capex. The $191.6 million prefunded for expansion is shared between MPLX and MPC, which limits some of the near-term funding need. Acquisitions are not guaranteed because MPC has no obligation to offer assets.

What are the main risks to unitholders?

Key risks include concentration on MPC, the ability of MPC to suspend or reduce its obligations (for example, if a refinery is shut down for at least 12 months), changes to FERC tariff methodology, and reliance on refining margins that drive throughput. Governance risks are also significant: the general partner can reset incentive distribution rights, unitholders have limited voting power, and the partnership agreement restricts fiduciary remedies. Environmental and pipeline safety regulation could also raise costs, though MPC indemnifies many pre-IPO liabilities.

Why is the company an emerging growth company, and what does that mean for investors?

The JOBS Act allows MPLX, as a newly public company, to exempt itself from the auditor attestation requirement of Section 404 of Sarbanes-Oxley while it qualifies as an emerging growth company. Management must still assess internal controls beginning with the December 31, 2013 fiscal year, and the 2012 report omits that assessment. Investors should view this as a transitional disclosure relief rather than a finding of control weakness, but it does reduce the level of independent assurance over internal controls in the near term.

MPLX/MPLXP 10-K FY2012 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 25, 2013. Cited figures are marked; the original filing is the authoritative source.

MPLX LP's first annual report as a public company (fiscal 2012) covers its October 31, 2012 IPO of 19.9 million common units at $22.00^a, which raised $407.1 million in net proceeds.

MPLX is a fee-based midstream master limited partnership that owns a 51.0%^b general partner interest in Pipe Line Holdings, which holds Marathon Pipe Line LLC and Ohio River Pipe Line LLC. These assets include roughly 1,004 miles of crude oil pipelines, 1,902 miles of product pipelines across nine states, a barge dock, tank farms, and a butane cavern. MPC, the parent, accounts for about 82% of revenues (excluding joint-tariff volumes) under long-term transportation and storage agreements with minimum volume commitments, which supports stable, predictable cash flows.

Financially, 2012 total revenues and other income were $461.9 million^c, up from $410.6 million, and income from operations was $143.2 million. Net income attributable to MPLX LP was $130.8 million, though most of that predates the IPO. Adjusted EBITDA attributable to MPLX LP was $166.3 million, and Distributable Cash Flow for the post-IPO period was $16.7 million, which is a short stub period and not comparable to a full year.

The company targets a minimum quarterly distribution of $0.2625^d per unit ($1.05 annualized), and it declared a prorated $0.1769 per common unit distribution for the stub period from October 31 to December 31, 2012. Balance sheet strength is good: $216.7 million of cash, total debt of just $11.3 million (capital leases), and an undrawn $500 million revolver. Capital spending is rising, with a 2013 budget of $142.5 million, of which $109.3 million is expansion capital, including the $77.9 million Patoka to Catlettsburg upgrade.

The key investor considerations are concentration risk, since MPC is the dominant customer and the partnership is indirectly exposed to refining margins and MPC's strategy. Other factors include distribution coverage that is not yet demonstrated on a full-year basis, a general partner whose incentive distribution rights can reach 48%, limited unitholder voting rights, and the dependence on MPC-sponsored drop-down growth. The company is also an emerging growth company, so it is exempt from the auditor attestation requirement for internal controls for now.

02—Key points

Key Highlights

IPO completed October 31, 2012: 19,895,000 common units sold at $22.00, generating $407.1 million in net proceeds, of which $191.6 million was retained to prefund expansion capex.
MPC accounts for ~82.2% of revenues and other income under long-term, fee-based transportation and storage agreements with minimum volume commitments, supporting cash flow stability.
Asset base includes ~1,004 miles of crude oil pipelines, ~1,902 miles of product pipelines across nine states, an 80 mbpd Wood River barge dock, ~3.3 million barrels of tank farm storage, and a 1.0 million barrel butane cavern.
2012 total revenues and other income of $461.9 million (up 12.5% from $410.6 million) and income from operations of $143.2 million (up 8.5%).
Adjusted EBITDA attributable to MPLX LP was $166.3 million for 2012 (vs. $168.3 million in 2011). Distributable Cash Flow for the post-IPO stub period was $16.7 million.
Strong liquidity: $216.7 million cash, only $11.3 million of debt (capital leases), and an undrawn $500 million revolving credit facility, with a leverage covenant ratio of 0.1x versus a 5.0x maximum.
2013 capital budget of $142.5 million ($109.3 million expansion), led by the $77.9 million Patoka to Catlettsburg crude pipeline upgrade, with a minimum quarterly distribution target of $0.2625 per unit ($1.05 annualized).

03—One dollar

04—Financials

Financial Highlights

10-KFY2012filed March 25, 2013

Net Income$13.10M Total Assets$1.30B Cash & Equivalents$217.00M

Financial Statements

Net Income

$13.10M

05—Questions

Frequently Asked Questions

How dependent is MPLX on its parent, Marathon Petroleum Corporation?
Very dependent. MPC generated about 82.2% of 2012 revenues and other income, excluding joint-tariff volumes treated as third-party revenue. MPC also owns the general partner, a 71.6% limited partner interest, and all incentive distribution rights, and it holds the remaining 49% of Pipe Line Holdings. MPC's minimum volume commitments and the contractual suspension and termination rights are central to the investment thesis, so investors should track MPC's refinery runs and its midstream strategy closely.
Is the distribution covered by cash flow?
The filing does not yet show a full year of distributable cash flow as a public company. The IPO stub period (October 31 to December 31, 2012) produced $16.7 million of Distributable Cash Flow, against a prorated distribution of $13.3 million declared for that period. The $0.2625 per unit minimum quarterly distribution requires about $19.8 million per quarter, or $79.2 million annually. Coverage depends on sustained minimum volume commitments, tariff indexation, and the timing of expansion capex. The partnership is also not legally obligated to pay any particular amount.
What is the growth strategy?
Growth comes from three sources: organic projects tied to MPC and third-party volume growth, drop-down acquisitions of MPC's remaining 49% interest in Pipe Line Holdings and other midstream assets, and third-party acquisitions. The 2013 plan includes about $109 million of expansion capex. The $191.6 million prefunded for expansion is shared between MPLX and MPC, which limits some of the near-term funding need. Acquisitions are not guaranteed because MPC has no obligation to offer assets.
What are the main risks to unitholders?
Key risks include concentration on MPC, the ability of MPC to suspend or reduce its obligations (for example, if a refinery is shut down for at least 12 months), changes to FERC tariff methodology, and reliance on refining margins that drive throughput. Governance risks are also significant: the general partner can reset incentive distribution rights, unitholders have limited voting power, and the partnership agreement restricts fiduciary remedies. Environmental and pipeline safety regulation could also raise costs, though MPC indemnifies many pre-IPO liabilities.
Why is the company an emerging growth company, and what does that mean for investors?
The JOBS Act allows MPLX, as a newly public company, to exempt itself from the auditor attestation requirement of Section 404 of Sarbanes-Oxley while it qualifies as an emerging growth company. Management must still assess internal controls beginning with the December 31, 2013 fiscal year, and the 2012 report omits that assessment. Investors should view this as a transitional disclosure relief rather than a finding of control weakness, but it does reduce the level of independent assurance over internal controls in the near term.

06—Continue

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