Welcome to the MPLX First Quarter 2022 Earnings Call. My name is Elan, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. And I would now like to turn the call over to Kristina Kazarian. Kristina, you may begin.

Good morning, and welcome to the MPLX First Quarter 2022 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 and CEO; John Quaid, CFO; and other members of the executive team. We invite you to read the safe harbor statements and 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 it over to Mike.

Thanks, Kristina. Good afternoon, and thank you for joining our call. Earlier today, we reported first quarter results, which continues to demonstrate the cash flow resiliency and stability of our business. 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 unitholders through distributions and unit repurchases. Our logistics and storage business benefited from the recovery in consumer demand and our gathering and processing business benefited from higher NGL prices. This quarter, we also advanced several organic growth projects. In L&S, we progressed crude gathering projects in the Permian and Bakken as well as a number of smaller expansion and debottlenecking projects. We are investing in our Permian natural gas and NGL takeaway systems, including yesterday's announced expansion of the Whistler pipeline to 2.5 billion cubic feet per day driven by growing demand from producers. In G&P, our growth capital focus is largely on projects in the Permian, Marcellus and Bakken basins. In the Permian, our fourth processing plant is ramping up to full capacity and we're progressing construction of a fifth processing plant, which will take our total capacity in the basin to 1 million cubic feet per day. With higher commodity prices, we are seeing a pickup in producer activity across our focus basins, we will maintain strict capital discipline as we assess these inbounds. 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, well ahead of their scheduled year-end…

Thanks, Mike. Slide 5 outlines the first quarter operational and financial performance highlights for our Logistics & Storage segment. L&S segment adjusted EBITDA increased $8 million when comparing first quarter 2022 to first quarter 2021. Pipeline volumes were up 4% and terminal volumes were up 13% year-over-year. The benefits of these higher throughputs were largely offset by environmental costs incurred in the quarter. Moving on to our Gathering and Processing segment on Slide 6. G&P segment adjusted EBITDA increased $33 million compared to first quarter 2021, largely due to higher NGL prices. For the quarter, NGL prices averaged $1.15 per gallon, which is $0.42 per gallon higher than the average in the first quarter of 2021. Overall, gathered volumes were up 4% as compared to first quarter of 2021 while processing and fractionation volumes were down 1% and 6%, respectively. Focusing on our largest region, the Marcellus, gathered volumes were up 1%, while processing and fractionation volumes decreased 3% and 4%, respectively. In the Marcellus, the changes in processing and fractionation volumes were primarily due to the timing of new production. And looking at the other areas, we saw growth in processing volumes in the Southwest as we've added capacity in the Permian. Moving to Slide 7. Our first quarter financial results demonstrate the earnings and cash flow resiliency and stability of our business. For the quarter, total adjusted EBITDA of $1.4 billion was up 3% from the prior year and distributable cash flow of $1.2 billion was up over 6% from the prior year. As a reminder, while we strive for stable and growing financial results, our operating expenses can fluctuate quarter-to-quarter depending on the timing of various regulatory, maintenance and other project-related work. 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. Looking at other financial highlights for the quarter. MPLX declared a first quarter distribution of $0.7050 per unit, resulting in a distribution coverage ratio of 1.65x for the first quarter. In early March, we issued $1.5 billion of 30-year senior notes, and proceeds from this offering were primarily used to repay amounts borrowed under our intercompany loan with MPC. We ended the quarter with total debt of around $20 billion and a leverage ratio of 3.7x. In closing, given current business conditions, our commitment to strict capital discipline and our continued adoption of a low-cost culture, we expect to continue generating strong cash flows, enhancing our financial flexibility to invest and grow the business, while also supporting the return of capital to MPLX unitholders. Now let me turn the call back over to Kristina.

Thanks, John. [Operator Instructions] With that, Elan we're ready for questions.

[Operator Instructions] Our first question today is from John McKay from Goldman Sachs.

Why don't we start on the -- and it's nice to hear you on the call, Mike. Why don’t we start on the recontracting, I think it makes sense, we're on the 10-year anniversary of the IPO. Can you maybe just share a little bit more on maybe what some of the puts and takes you guys are looking at? How those contracts work now? And are we talking about kind of the whole portfolio or just an initial set of pipes, so things like the fuels distribution might not be being looked at yet?

John, it's John. Let me start with that and then Mike can add on if he has any additional comments. So in Mike's prepared remarks, what we're really referring to there are the pipeline contracts, right, that would have been part of the initial IPO. So in 2012, here we are in 2022, end of this year those contracts were set to expire. And really based on maybe feedback from investors, there were questions on whether or not we were going to renew these. And again, we've continued to say these are integral assets fit for purpose for MPC. So the parties really kind of discussed this a little bit earlier in the process. That contract would have had two 5-year automatic renewals. We're going ahead and renewing it for 10. So that's how we've handled the pipeline contract. We'll look to future contracts as we move forward. Again, I think you would have heard Mike in his prepared remarks that we think renewing these contracts is beneficial economically and financially for both entities. So Mike, anything you want to add?

Yes, John, it's Mike. I often ask people, is there anything we're doing that we shouldn't be? Or is there anything we're not doing that we should be? And to our surprise, we kept getting some questions around contracts with MPC. Now as I said in my prepared remarks, it makes financial and economic sense for both entities. So MPC is going to use MPLX assets. It's a given. So we were surprised that people were concerned about that. So our normal cadence, as John just said, would have been when they come up. But since people have asked us about it, we said, “Okay, since it’s a question in people’s mind, we’ll take that question off the table.” MPC and MPLX are going to continue to do business, it’s integral to both entities and it’s a win-win for both entities.

I’ll ask my follow-up, and I am sure I'll ask them on the buybacks. So maybe I'll do something kind of more on the macro. So it's obviously -- it's a pretty strong backdrop for refining, but at least in the second quarter, we've seen product exports pick up pretty hard. And you guys have talked in the past about actually having lower product exports is better for the MPLX L&S portfolio. So I'm wondering if you can just spend a little bit of time on kind of talking about what the refining macro should mean for L&S kind of through the balance of the year.

John, this is Tim Aydt. I'll take that question. First off, we do see demand for refined products remaining very strong. We expect as well that refiners are going to continue to have high utilization rates, and they're going to try to meet those market needs that are out there today. Our pipeline utilization remains very high, and our terminal volumes are actually in record territory. And I think you've kind of noticed from the past that we have some pretty strong MVCs. So our contract structures are pretty solid. And as a result, we don't really have a lot of, I'd say, it's a muted sensitivity to changes in refinery utilization. So I think that's a little bit on maybe the backdrop. If you talk about maybe the exports a bit. We have a large portfolio of assets, and that includes docs in several locations that support these exports. It could be Garyville, it could be Mount Airy, it could be the Galveston Bay docks, et cetera. And in general, we don't really expect major swings within L&S revenue based on shifting product patterns. We have a very flexible system that can swing to the pipe in the U.S. Gulf Coast or it can swing to the water, as needed. And again, the MVCs back up several little systems. I think if you look at the crude side, we're similarly well positioned, I would say, to participate on the crude exports. We have the South Texas Gateway, and we have our loop ownership interest and both of those have those capabilities. So hopefully, that's helpful.

John, it's Mike. I just -- I don't know if you were looking at the first quarter results, but if you weren't aware, MPC had 2 outages on the Gulf Coast that impacted our business. One was the Texas City power outage, the entire city took out our Galveston Bay facility and the other was an unplanned outage at Garyville. So if you're looking at those quarterly results, I just wanted to point that out as well.

Our next question is from Jeremy Tonet from JPMorgan.

I just wanted to touch base on processing needs across your footprint, particularly I guess, in Appalachia and the Permian. Appalachia, I'm curious with incremental NGL egress with Mariner East online with the shell cracker coming, do you see more of a move towards the liquids-rich production there? And how could that impact your processing? And similarly, in the Permian, we see tightness in processing there and just wondering, what type of opportunities that might breath for MPLX?

Greg, do you want to take that one?

Sure. Thanks, Mike. Jeremy, yes, to address the question, starting with Appalachia, we – so the Monaca plant is something we’ve been anticipating and are excited about. We are in the process of building our -- the latest -- our de-ethanizer fleet in that Smithburg in West Virginia, which has coincided early third quarter to come online along with that cracker, but that will increase our ethane production capacity over 300,000 barrels a day. And if you combine the 4 pipelines, the takeaway ethane out of the basin, along with Monaca, the recently completed expansion of Mariner 2 and Mariner 2X, which frees up more ethane capacity and the ongoing increase in prices for ethane, I think there is an opportunity for producers to recover more ethane in the basin. In terms of overall activity, I think it's been publicly announced by a number of our larger producers that they are still in maintenance to low single-digit growth mode. So in terms of liquid production for propane and heavier products, we expect that to stay pretty stable. The takeaway lines are fairly well in balance. Switching to the Permian, obviously, a big growth area for us right now, completing our fifth plant later this year and in the process of continuing to ramp up, utilization into our fourth plant, Preakness, which was put in service late last year. So I think that they're – it’s going to continue, obviously, with crude prices being where they are, and gas prices, there's going to be continued growth in that area, we would expect, tied to takeaway volume. Tim, you may want to add on the downstream part of the Permian. Hopefully, that answers your question, Jeremy.

Yes. Jeremy, I would just add that when you look at the Permian, there's a lot of forecasts out there that are predicting up to 6 Bcf a day of increased demand by 2028. And that's going to obviously be a big pull on the -- not only the processing, but also the pipeline takeaway capacity. So I think you're starting to see that as it moves. The LNG markets are growing. I think you're going to continue to see investments needed across the midstream in that regard.

Got it. And then just pivoting back towards the contract renewals as you wait out there. Just wondering, how would you say the market today compares to the market when those contracts were first signed? Just wondering if you'd say the market is better or worse than when those rates were first struck.

Jeremy, it's John again. Remember, these are pipeline contracts. A lot of them are going to have base rates or other rates that have been moving, frankly, year-to-year. So maybe a little bit different if you're thinking of our marine contract, which we renewed about a year ago. That would have had a completely different structure than what’s in these pipeline contracts.

Got it. So is it fair to assume no real change in the rates of material size? Is that the right way to think about it?

Well, yes, as I was saying, the rates have already been changing every year based on other factors. So we're really just looking to kind of maintain the terms and lock in a term that we already planned on renewing, so.

Let me just add that most of them are indexed just like many pipelines are. So as John mentioned, it can be indexed to FERC or something else. So over time, there's a changing, but it's still a very market-related rate.

Our next question is from Brian Reynolds from UBS.

And Mike, it's good to hear you on the call as well. For my first question, I wanted to dig into the capital allocation framework as it relates to MPLX's return of capital strategy. It appears there's roughly $200 million or a little more left on the share buyback authorization. And I was curious, if you could share some thoughts around future return of capital, including potential reauthorization of the buyback program or a potential special distribution, similar to what we saw in 3Q of last year.

Brian, it's John. I'll maybe start with that one, and then Mike can add on some comments. So again, our kind of framework that we've talked about before remains, right? We're going to look to maintain a strong balance sheet. We're going to look to invest for the safety and security of our assets at our employees. We're going to secure our distribution. We're going to look at growth capital, where can we grow the business. And then as we look at capital that's left over, then we get to a point of how do we think about returning that either via distributions, whether that be base or perhaps a supplemental distribution or unit repurchases. If you look at this quarter, right, we've said -- we said, “hey, we're going to look at the cash flow we're generating each quarter”. This quarter we had about, as Mike said, $850 million of free cash flow. Our base distribution was $758 million and we did a $100 million of unit repurchases. So effectively, have looked at where we were there. Now one of the things we said last quarter, which I just want to reiterate this quarter as well, I’m not sure you can look at the programmatic unit repurchases we did last year and assume that's what we're going to do this year. I think we're looking at how we think about creating value for all unitholders. And I think as part of that, right, a supplemental distribution is certainly a tool for us as we think of return to capital.

Great. I appreciate all the color. Maybe as just a follow-up on some of the growth project questions as we start to look at 2023 and beyond. You alluded to finishing up your fifth processing plant in the Permian at year end. Maybe could you talk about the potential for your further growth projects, will that include a BANGL pipeline expansion? And when could we see that? And then what are your thoughts around participation in the new greenfield natural gas pipeline out of the Permian post the reannounced Whistler expansion as well?

Yes. I'll take that one, Brian. So obviously, you're right. We did announce yesterday the expansion of the Whistler pipeline to 2.5 Bcf. We obviously, as I just mentioned earlier, there's a lot more growth anticipated on the natural gas side beyond what the Whistler expansion would do and some of the other expansions that are that are being announced. I would say that most forecasts call for a second Permian gas pipeline to be required by the end -- by 2025 and a second one by 2028. So certainly, there's opportunities there to continue to look for incremental investments, we’ve been very public about the facts that we’re going to continue to look at the extension into the natural gas and NGL value chain. As for BANGL, obviously, we continue to monitor that. We did announce in January, we brought on another partner in that in the form of Rattler Midstream. And so with that comes additional dedicated acreage, et cetera. So I think that over the course of time, you're going to continue to see NGL volumes grow. And with that, we have various cost-effective expansions we can put in place.

[Operator Instructions] And our next question is from Keith Stanley from Wolfe Research.

First, I wanted to ask on the Whistler expansion. So I think the initial project was fully contract under 10 year terms. Should we expect a similar approach here and then just any thoughts you can give on how to think about the tariff for an expansion and how that might compare to how you would look at a new build overall?

So Keith, this is Tim. I'll start that. I might not be able to answer all your questions specifically. But again, as we did announce yesterday, we are expanding that. I think maybe a few things on the way of background in case others have questions. I mentioned in the first quarter that we were evaluating that. Obviously, we concluded that evaluation. And I think one of the things that's important is that the system was originally designed and permitted with potential expansion in mind. So it is very capital efficient. It does not require new rights of way or any redesign. From a status standpoint, our compressors are on order. We anticipate the expansion is going to be in service in September of 2023. As for the contract terms and potentially -- we were not able to really talk about [contracts], but I would provide some maybe assistance with that. And I would just characterize those as long-term take-or-pay and they're fee-based, which means they're very rateable cash flows for the JV. So again, being an expansion, it is capital efficient and lower risk. So it's a strong investment, but I'll probably just leave it there.

Okay. Great. And then second one, I just wanted to follow up on volumes in the quarter. So your G&P volumes were down a little bit versus the fourth quarter kind of across the regions. And I feel like we've heard some consistent commentary from others today, especially in Appalachia. But just how are you thinking about volumes over the balance of the year in G&P, both Appalachia and then Southwest also looked like it was down a little bit even with Preakness presumably ramping up a little?

Greg, do you want to take that?

Sure. Keith, yes, starting with Appalachia, the Utica has continued as far as process volume continues to decline as focus has been on some of the dry lean gas in that area. So generally, the gathering in the Utica swings up and down. It's most affected by some of the new dry lean wells that come on and the timing of those pads. We did have some weather-related impact on our processing gathered volumes, which also affects fractionation in Marcellus. Most of that in early February related to Ice and Power and freeze offs, which drove most of the Marcellus impact. Yes. And if you go to the West and focus on that, yes, we have continued to have growth in the Permian Delaware, but we also do have some other areas that were either impacted by weather or by timing of pads coming online. The Bakken, for example, has had -- continues to have weather issues as well as the Rockies. But I think the key point is that weather does impact us a lot in the first quarter. The other thing that you'll see is that most of -- even on a maintenance level drilling program for the full year, that doesn't necessarily mean flat levels quarter-to-quarter and a lot of the production because of weather and construction and drilling schedules tends to be more back-end loaded. So there will be some more natural decline just due to pad, the timing of new pads coming online measured against just the ongoing decline of existing wells.

Our next question is from Michael Blum from Wells Fargo.

Just really one, commodity prices are obviously very high right now. We've seen some M&A transactions in the G&P space over the last few months. Just curious, any updates on your long-term initiatives to divest some of your noncore assets? Are you seeing any changes in the market?

Yes, Michael, it's Mike. We don't really have anything new to report there. We had mentioned a while back that we wanted to change our portfolio a little bit, but the market was not at the same place we were. Since that time, we're now looking at currently $8 gas. And I said a couple of times on calls, our basins are generating free cash flow. So even though some of them are not going to get a lot of capital in the future because they're not long-term strategic, in the meantime, though, they're generating free cash. So we're still steadfast in what we believe is the right valuation for the assets. And if others met it then something could happen. But right now, we don't have anything going in that regard at all.

And I am showing no further questions at this time.

All right. Well, thank you, everyone, for joining us today. If you have any questions that were not answered during the call today, please feel free to reach out afterwards. We're here to help out at any time. Operator, thank you.

Thank you. This does conclude today's conference. You may disconnect at this time.