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Morningstar | MPLX Delivers Strong 4Q Results; Growth Prospects Look Bright

MPLX turned in strong fourth-quarter results, and we think the outlook looks bright. We don't plan on material changes to our $44 fair value estimate or narrow moat rating. We think the partnership is quickly becoming one of the top midstream players, shifting toward a self-funding stance, keeping leverage below 4 times, and building an attractive slate of projects. Fourth-quarter EBITDA improved to $911 million from $569 million last year, reflecting $262 million and $80 million in contributions from dropdowns and organic growth, respectively. With an aggressive capital spending program of $4.2 billion across 2019 and 2020, EBITDA targets of $3.9 billion and $4.4 billion for the same years look achievable.

Organic growth is running at a $360 million annual run rate, so the forecast implies more of the same, which we consider reasonable given the bright growth prospects for gas out of the Appalachian region and planned pipeline additions, particularly in the Permian. Key growth projects include the Swordfish (moving crude from St. James to the LOOP terminal), Permian Gulf Coast (moving crude from the Permian Basin to Texas Gulf Coast), and Whistler pipelines (a gas pipeline from Waha to the Agua Dulce market hub), which are due to come online in 2020 as well as the addition of 800 mcf/d of processing capacity in 2019. The recent startup of the delayed Mariner East 2 pipeline in December 2018 and the planned startup of the Mariner East 2X pipeline in late 2019 should provide further opportunities to move valuable natural gas liquids from the Appalachian region to Marcus Hook for potential export opportunities.

We do expect an eventual merger between MPLX and Andeavor Logistics to take place, offering MPLX additional cost-cutting, asset optimization, and investment opportunities, which could offer additional upside for unitholders.