Welcome to the MPLX Third Quarter 2021 Earnings Call. My name is Ivy, 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. [Operator Instructions]. Please note that this conference is being recorded. I will now turn the call over to Kristina Kazarian. Kristina, you may begin.

Good morning and welcome to the MPLX third 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 today on the call today are Mike Hennigan, Chairman and CEO; John Quaid, 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.

Thanks, Kristina. Good morning, everyone and thank you for joining our call. Earlier today we reported adjusted EBITDA for the quarter of $1.4 billion and total return of capital of $900 million through 745 million in distributions, and 155 million of unit repurchases. Looking at our year-to-date results, a number of factors have a line to allow us to generate very strong cash flow. We have benefited from lower capital spending, strong NGL prices and proceeds from asset optimization efforts. These tailwinds along with solid business performance, and cost reduction efforts have combined to result in just over $1 billion of cash flow available for deployment above our current capital spending and distribution requirements. We've returned $465 million on this capital to unitholders through year-to-date unit repurchases. We believe some investors prefer unit repurchases while others prefer cash return and after several quarters of employing unit repurchases for incremental return of capital, today, we announced an increased third quarter distribution of $1.34 billion. The increased distribution include the special distribution amount of about 600 million and a 2.5% increase in the partnerships based distribution amount, reflecting our confidence in the business. Special distribution amount is one way to allow all unitholders to immediately recognize the benefit of our strong cash flow this year. We also believe that distributions can be a more tax efficient way to return capital unitholders versus unit repurchases. For 2021, we have now announced a total of $2.8 billion of distributions to unitholders on top of 465 million of unit repurchases. Moving to business updates, we're making progress in our portfolio optimization efforts with our announcement this morning that we are pursuing strategic alternatives for our Alaskan logistics and storage operations, which could include a sale. We also advanced our key growth projects in the Permian…

Thanks, Mike, and good morning, everyone. Slide 5 outlines the third quarter operational and financial performance highlights for our logistics and storage segment. L&S segment adjusted EBITDA increased by $11 million, comparing third quarter 2021 to 2020. Pipeline volumes are up 17% and terminal volumes were up 13% year-over-year, as the industry rebounded from the pandemic. The benefits of these higher throughputs were somewhat offset by the effects of lower marine transportation rates. Moving on to our gathering and processing segment, Slide 6 provides its third quarter operational and financial performance highlights. G&P segment adjusted EBITDA increased by $43 million, comparing third quarter 2021 to 2020, largely driven by higher NGL prices. For the third quarter, NGL prices averaged $0.96 per gallon, more than double the $0.45 per gallon average for the third quarter of last year. As a reminder, every $0.05 change in the NGL basket is worth roughly $20 million to our annual results. Overall, gathered volumes are roughly consistent year-over-year, while processing and fractionated volumes were each down 2%. In the Marcellus, gathering volumes were up 5%, process volumes decreased 1% and fractionated volumes increased 2% relative to the third quarter of last year. Across the basins where we operate, we are seeing different levels of activity in response to current market conditions. In the northeast, despite higher natural gas and NGL prices, producers continue to focus on strengthening their balance sheets and prioritizing free cash flow over volume growth. Additionally, takeaway capacity constraints have continued to limit production. However, we are seeing increased activity and volume growth in the Permian and in the Bakken. Moving to our third quarter financial highlights on Slide 7, total adjusted EBITDA was 1.4 billion up 4% from the prior year for the reasons Mike discussed earlier, or I discussed earlier.…

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

Thank you. [Operator Instructions] Our first question is going to come from Brian Reynolds with UBS.

My first question is around the capital allocation thought process. Should we view the special distribution as a faster method of return of capital versus buybacks given ADB limitations and kind of curious where leverage is headed? Given where leverage is headed in 2022, can we see all the above return of capital situation similar to what we have seen in 2021? Thanks.

Thanks, Brian. This is Mike. Let me give you the long winded answer. Hopefully this will give everybody a little bit more color stack why we came out with the return of capital that we did this quarter. So, first of all, at a high level, we still believe that our balance sheet and our commitment to an investment grade rating is paramount. The way we think of capital allocation is, we're going to take care of our assets. So we're going to have sustaining capital as a high priority. We've had a base distribution amount for quite some time here. And I just want to point out that that base distribution is a pretty high payout ratio and we'd never cut, despite some of the troubles that others have run into. But once we get through that, then we have capital available for deployment. It can be in growth capital. And John talked a little bit about that buybacks, an additional distribution amount, which we called a special distribution. We could increase the base, which we've also done this quarter. We'll talk about that in a second and debt reduction. I'll start first stack with debt, we're very comfortable. We said for many, many, many quarters that we're comfortable that we have stable cash flows, and then a leverage ratio of around four times works for us. Currently, we're a little below that. We're running around 3.7x. So do we think the balance sheet is in terrific shape and we generated a lot of cash. And the way that I'd like you guys have the takeaway is that capital, it's available for deployment is a dynamic decision that we're going to make quarter-to-quarter. And it's depending on market conditions, our business needs and what we see in the current…

Great, thanks for all that color really helpful. For my follow up, was wondering if you could just give some additional color around, potential impacts from PPI across the organization from like a revenue generation perspective. How can the business see an uplift and it doesn't spread across those segments with L&S and GMP? Thanks.

Yes, Brian, I'm going to let Tim give you some background on that whole PPI situation.

This is Tim Aydt and thanks for the question. Take my mask off here. While it's true that there is an increase in the index that would increase revenue on the FERC regulated assets, I think it's really important to understand that this is not a direct flow through to the bottom line. The whole purpose of the index is to offset higher costs that we incur during these inflationary periods. So for FERC pipelines, we've historically adjusted rates that are in line with what is allowed by FERC as a means to cover these higher costs. Now, most of our non-FERC regulated pipelines and storage assets, they also have built in escalators to help offset some of these inflationary costs. Now, these are not always based on CPI and PPI. Sometimes they're flat rate adjustments. So that's a little bit of the background on those but I would say for reference, only about a third of our logistics and storage. EBITDA is generated from FERC regulated assets. So it's really a mix of a lot of different things, PPI flat rate adjustments, et cetera.

Thank you. Our next question comes from John Mackay from Goldman Sachs.

I know you're going to get a couple of these follow ups but I do need to ask one on the special. Just curious, if you can think about kind of the size of the special this quarter. And just to clarify your comments earlier that this is something that we -- it might move around, but we could still see kind of ratably in the future. So this isn't necessarily a one-off. Thanks.

John, thanks for that question. So, additional follow up, what I was trying to say to the previous question is, it is going to be a dynamic situation, I don't think you should take this as a one-off. That's an important point that you're bringing up. We plan to continue to have that financial flexibility. And will ebb and flow a little bit on buybacks, distribution amounts, whether we call in special or whatever term you want to use. We're also going to be very conscious of what's happening in the business. As we mentioned, in our prepared remarks, the capital this year is a little lighter than we would normally think, for this business. So we'll give a little bit more guidance next quarter on where our capital expectation is, but at least for this quarter, we're trying to tell you, it's going to be a little higher than where we are this quarter, for a lot of reasons. Some of its timing, some of its capital discipline that we've been employed. So I guess the important point that I'm trying to emphasize and hopefully everybody gets this is that, we're going to continue in a commodity business that has a lot of ups and downs and variabilities, we're going to continue, each and every quarter to evaluate the situation examine where the business needs are, look at the market conditions and try and make a determination as to what is the best return of capital. I should add that, you've heard me say this in the past, I'm a huge believer that there's two parts to this business, there's a return on capital and we very much believe in growing our earnings, and this is a growth vehicle for us. So that's an area of emphasis that I don't want to get lost in this whole return of capital. But both return on and return of capital are very important to us. And we're trying to maximize, the impacts of both of those. So, when it comes to return of, we're going to look at our base, we're going to look at whether that should get an incremental adjustment, which we did this quarter. We'll continue to evaluate that. We'll continue to evaluate how much cash flows that we're generating. As John mentioned, in his prepared remarks, it's been a strong year, from a lot of perspectives. So from that standpoint, we've generated over $1 billion of cash flow through three quarters. Obviously, without guidance to the fourth, we expect to have a little more on top of that, as we progress. So it's been a very strong cash flow year. We've returned 455 of unit repurchases. We're going to continue to engage in that program as well. But we thought it was appropriate to have an immediate return to the unitholders as well.

I just wanted to emphasize some of Mike's comments there as well, right. There were some number of items that kind of aligned for us this year that, again, are things we're going to have to take a look and understand what those look like in the future. So certainly a broader approach to kind of incremental return of capital when it's available. But again, that'll be dependent on, what the market conditions are at the time, what kind of cash flow we're generating, et cetera. So, certainly something we'll continue to look at look at. But there may be some quarters where, we're not talking about having the same conversation in other quarters where we are.

Okay. That's great. Thank you, Mike. My follow up is, kind of makes sense with '22, CapEx essentially being higher than '21, just given how far '21 has come down? Would it be a fair assumption to say that, given you're not taking this cash to kind of start prefunding 2022 CapEx that while it might be higher, it's not going to be a dramatically larger number. I know, you're not giving specific guidance here, but just trying to think relative basis and how to think about funding for it?

Yes. No, John, you might have answered it with your last comment. Right. We'll have guidance for next year on next quarters call. But certainly, trying to make sure you guys understand the number is going to be higher next year. If you kind of take the guidance we gave for this year, 550 million on growth and 100 for maintenance, right, that applies about 200 to 210 of growth in the fourth quarter and about 50 of maintenance. Again, some of that's driven by the timing of projects, as we roll into next year. So, certainly higher, but not -- we'll share those numbers on next quarter's call because part of what happened to us this year, in addition to really taking a much stricter look around capital discipline. We would have had some projects that were just deferred as we were coming out of COVID that kind of pushed things later in the year and into next year. So again, looking for higher capital next year and we'll talk about that on next quarter's call.

Thank you. Our next question comes from Michael Blum from Wells Fargo.

Thanks. Good morning, everyone. I want to talk a little about the GMP business. Wondering if you're hearing anything in the northeast, from your producers? I know you mentioned capital being constrained from a pipeline takeaway perspective, do you think that the dynamic will change at all when Mountain Valley comes into service? And there's a little more take away in the region with that change? The drilling activity or do you think get the producers are just going to continue to return cash to shareholders?

Michael, this is Greg Floerke. Yes, I think that the producers have been in free cash flow positive mode and maintenance drilling mode. And there's been constraints as we operated high levels of utilization, both in processing and in terms of takeaway pipe. Certainly as more residue gas pipeline takeaway capacity becomes available, there is that opportunity to increase drilling and volume. The processing capacity is fairly tight, but there is still potential there for growth. The other thing that I would mention is that the [shale] [ph] cracker in North of Pennsylvania is scheduled to come online mid next year, we will drive increased recovery of ethane from gas that also will free up capacity and the residue lines. And we will increase utilization of our deethanizer plant as well. So those things clearly could drive production, gas prices and NGL prices are obviously supportive of more rich gas production. But we're -- that's so open to what the producers decide to do.

Thanks. Appreciate that. Second question. Staying on GMC, I know you've had sort of an ongoing desire to divest some of your -- maybe non-core GMP assets, I'm wondering in light of commodities moving much higher in the last few months, if you're seeing any change in interest there. Thanks.

Michael, we still have an overall strategic plan to consider where we think core assets are versus not. I've said many calls that the bid ask has been too wide for us to consider. I would tell you that that bid ask is narrowing. But at the same time, we are very comfortable still with the assets that we have in place, we don't have anything, I use the term on the front burner. But if we maintain this type of activity and the commodity prices stay where they are and there's a little bit of a renewed interest, then maybe there's a transaction that could occur at some point. Nothing right now on the horizon, we're interested, but we're also very happy with where our assets are. And my philosophy has been, all of our assets need to generate free cash. We're in that mode, we continue to be in that mode throughout all the eight of the basins that we're in. So I think overall, we're still happy with the situation we have, but we'd like to optimize the portfolio for the long-term if the situation arises. But it's not something that we have to do.

Thank you. Our next question comes from Theresa Chen. Please go ahead.

I wanted to ask about the cost cadence actually understanding that fourth quarter, we're going to see another quarter-over-quarter bump and expenses. Just going to the quarterly run rate in 2022, should we expect some of that to normalize? Or how should we think about that?

Good morning, Theresa. It’s John. Yes, that's definitely similar to some of our maintenance capital, it can be a little bit lumpy, right, and how that kind of happens over the year, which is why we were trying to flag that earlier in the year as well. So definitely a higher level in Q4, but that wouldn't imply that we'd be on that run rate going forward.

Understood. And related to the announcement of seeking strategic alternatives for Kenai, both in the primary and the logistics assets at the partnership. Can you remind us how much EBITDA contribution that logistics assets actually generate for MPLS, currently?

Actually, Theresa, it's not a number we've disclosed.

Thank you. Our next question comes from Keith Stanley from Wolfe Research.

Hi, good morning. First, just on the Permian strategy, are there next steps that you're looking at now that Whistler Wink to Webster, and the NGL project are complete. I guess are there other capabilities that are important for the company to add at this point? Or do you feel like you're in a pretty good place in the Permian?

So, this is Tim Aydt. I'll take that one. We continue to be really bullish on natural gas and the NGL growth. I do believe that we're well positioned in the Permian in particular, to take advantage of the investments we've made thus far. When you look at our Agua Blanca system, when you look at the Waha gas storage, and when you look at Whistler, and of course, the NGL solution. I think these are all really solid platforms for growth and really to expand off of. I think you can kind of look further down the value chain, it could be as far as exports and other stuff that may provide some additional opportunities. So again, pretty bullish on natural gas and NGLs in particular. But then there's also energy evolution ideas as well, that could provide growth opportunities.

Okay, thanks. And then, different maybe a little bit of a silly question. But the buyback pace has been just almost exceptionally programmatic with the 155 million a quarter for three quarters in a row now. Is it fair to think that that's sort of your target, I would think at this point, with the stock at these levels? And if the business is steady? And is there any technical reason you've been kind of shooting for around that level for three quarters?

Keith, it's Mike. Now it's a more coincidence. And to be honest with you, we were on that pace, and we were going to change the number just so it wouldn't be the exact same number. But pretty much we had said to ourselves, we're going to deploy about this much in that arena. We obviously did not do distribution for a couple quarters. And now we decided to pull that trigger. But, overall, like I said, it's dynamic, we're thinking about it, quarter-to-quarter, we're obviously also looking a little bit into the future. So that, the fact that it turned out to be the exact same number is more coincidence than and I'll say, designed to be exactly that.

Thank you. [Operator Instructions] And I am actually showing no more questions. Thank you.

Great. Well, thank you for joining us. And thank you for your interest in MPLX. Should you have additional questions, or would you like clarification on any of the topics discussed this morning, members of our Investor Relations team will be available to take your calls. Thank you, everybody.

Thank you all for participating in today's conference. You may disconnect your line and enjoy the rest of your day.