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Morningstar | MPLX Reports Good 2Q Results; Expands in Permian

MPLX reported a good second quarter and we plan to maintain our $38.50 fair value estimate and narrow moat. We think the partnership remains very well positioned to benefit from natural gas liquids production growth in the Appalachian region over the coming years, given its dominant asset base. The completion of $12 billion in drop-down assets last year, with EBITDA increasing to $867 million from $474 million, primarily drove the results. While we think the incentive distribution rights buyout was expensive, the partnership still has ample capacity to self-fund investments and pursue incremental distribution growth. The distribution coverage ratio was 1.36 times this quarter, and the distribution increased 12% year over year, tracking toward the partnership's 10% growth target. From an investments perspective, MPLX announced that is building a 200 mcf/d gathering and processing plant in the Permian, and acquired a 10% stake in the Agua Blanca pipeline, which moves gas to Waha from Orla, Texas. With debt/equity at 3.7 times, MPLX has ample capacity to pursue more deals while still remaining investment-grade.

We think some of its best opportunities remain the Appalachian region. Gathered volumes in the Marcellus and Utica increased 20% and 73% from last year, respectively. Similarly, NGLs fractionated in the Marcellus and Utica increased 18% and 13% over the same time frame. The completion of the Mariner East and Mariner East 2X pipelines in late 2018 and mid-2019 will substantially expand the ability for NGLs to move to Marcus Hook for export purposes, providing new opportunities for MPLX.

With the pipeline projects nearly complete, we expect the focus to turn to potential investments around Marcus Hook export facilities, potentially as part of a joint venture with Energy Transfer which owns the Marcus Hook export facility, or pursue a new effort altogether with the support of Marathon Petroleum. This effort would have the potential to materially increase fees for MPLX and further serve to consolidate its already strong position in the region.

For more details on our NGL forecast, please see our July report "The Natural Gas Liquids Rubik's Cube Solved."