MPLX Lp (MPLX) Q2 2018 Earnings Report, Transcript and Summary

Welcome to the MPLX Second Quarter Earnings Call. My name is Elan 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 now being recorded. I will now turn the call over to Kristina Kazarian. Kristina, you may begin.

Good morning and welcome to the MPLX second quarter 2018 earnings webcast and conference call. The synchronized slides that accompany this call can be found on mplx.com under the Investors tab. On the call today are Gary Heminger, Chairman and CEO; Mike Hennigan, President; Pam Beall, CFO, and other members of the management team. We invite you to read the Safe Harbor statements and non-GAAP disclosure on slide two. It is 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. Now, I’ll turn the call over to Gary Heminger for opening remarks.

Thanks, Kristina, and good morning to everyone. This is another impressive quarter for our midstream business, and I am pleased to report that MPLX performed exceptionally well during the second quarter with record adjusted EBITDA of $867 million. Our distributable cash flow was up 12% sequentially, which provided strong distribution coverage of 1.36 times and a solid leverage level of 3.7 times. Not only has our business continued to grow compared to last year, but our growth since first quarter of this year continues to be very strong. We experienced record volumes across our G&P and L&S segments. We look forward -- as we look forward, the macro backdrop and prospects for our business remain positive. We believe that the U.S. production growth and global demand will remain strong across all of our key hydrocarbons, crude oil, natural gas, and NGLs. And the opportunity set remains robust in all the regions which we operate. Additionally, this quarter, we also announced some exciting new Permian infrastructure projects as well as commenced operations of new plants in the Northeast and STACK, both of which Mike will discuss shortly. As we assess our opportunity set, we intend to maintain our focus on self-funding the equity needs of our organic growth with an emphasis on higher coverage and lower leverage as we believe this approach will position the partnership well and help us drive long-term sustainable shareholder value. With that, let me turn the call over to Mike to review our operational highlights.

Thanks, Gary. Slide four provides an overview of our Logistics and Storage segment. The L&S segment reported second quarter adjusted EBITDA of $526 million, which increased 32% year-over-year, after adjusting for the impact of dropdowns. Drivers of the increase included two of our recent pipeline investments, the Bakken pipeline and the Ozark pipeline expansion. Total pipeline throughputs averaged 3.3 million barrels per day and approximately 10% increase over second quarter 2017, as we completed major expansion work on the Ozark and Wood River-to-Patoka pipeline systems. The system’s current capacity is 345,000 barrels per day, which is expected to increase to 360,000 barrels per day by the end of the third quarter. Both of these projects create additional throughputs and incremental fee-based revenue for MPLX. During the quarter, we also added 12 barges to our marine fleet, which is a 5% increase in its overall capacity, taking the opportunity to increase our capabilities while decreasing MPC shipments with third-party providers. Moving to our Gathering and Processing segment. Slide five provides an overview of our operations and some highlights for the quarter. Within the G&P segment, we reported second quarter adjusted EBITDA of $341 million, an 18% increase over the same period last year. As we continue to see demand growth across our system, we've commenced operations on five of our eight planned new processing plants for the year, bringing our total system capacity to 8.7 billion cubic feet per day. We also announced multiple new projects across both the Marcellus/Utica and the Permian, which I'll talk about shortly as I get into the specific regions. Slide six provides an overview of our operations in the Marcellus and Utica shale during the second quarter. Gathered volumes increased 46% over the same quarter last year to an average of 2.8 billion cubic feet per day, setting a new record for the partnership. The increase was primarily driven by higher Utica dry-gas volumes. Processed volumes averaged approximately 5.2 billion cubic feet per day in the quarter, representing a 10% increase over the same quarter last year. The increase was primarily driven by new plants that we have placed in service over the last year, including Sherwood 9, and Houston number 1 plants that commenced operations in the first quarter. We remain enthusiastic about the growth prospects of the Marcellus/Utica, based not only on our internal forecast developed from input from our producer customers, but underpinned by the economics resulting from it being the lowest cost region in the United States. As in-basin growth continues, we were pleased to commence operations of the 200 million cubic feet per day Majorsville 7 plant in July. To support additional growth of the Northeast, we expect to add 600 million cubic feet per day of incremental capacity during the second half of the year through planned additions at our Sherwood and Harmon Creek complexes. Slide seven provides the summary of our fractionated volumes in the Marcellus and Utica region. We produced a record 407,000 barrels per day of ethane and heavier NGLs in the quarter, a 16% year-over-year increase. During the second half of the year, we expect to add 100,000 barrels per day of new fractionation capacity, which consists of 20,000 barrels per day of ethane fractionation capacity at both Sherwood and Harmon Creek, and 60,000 barrels per day of propane plus fractionation capacity at our Hopedale Complex. These capacity additions will further strengthen MPLX’s position in the Northeast. Slide eight highlights some of our activities in the Southwest in the quarter. Gathered volumes averaged nearly 1.5 billion cubic feet per day for the second quarter, representing a 6% increase over the same quarter last year. Processed volumes averaged over 1.4 billion cubic feet per day for the quarter, an 8% increase over second quarter 2017. Much of this increase was driven by volumes at our newly constructed Argo plant in the Delaware Basin, which continued to ramp up its volumes during the quarter. In the STACK shale play of Oklahoma, we commenced operations of the 75 million cubic feet per day Omega processing facility in July. Lastly, we’re pleased to report additional progress on our Permian growth strategy and announced additional projects in the Permian Basin. These include a 200 million cubic feet per day gas processing plant called Tornado in Loving County, connecting high pressure gathering system and a gas interconnect pipeline system in the Delaware Basin. Also a 10% equity interest in the Agua Blanca gas pipeline that runs from Orla, Texas to Waha, Texas. Project currently has 1.1 billion cubic feet per day of long-term commitments and will connect to the Tornado processing plant and associated gathering system along with other additional infrastructure in the region. These midstream assets will continue to expand our footprint in the Southwest and provide MPLX with both growth and diversification of cash flows in some of the most important basins in the country. Before I turn the call over to Pam, I want to take a moment to summarize where we are strategically. First in the Logistics and Storage segment, our assets and services are supported by long-term contracts and provide a significant base of stable cash flows. These assets and services are integral to the underlying operations of MPC, but also provide MPLX with a strong growth profile as we increasingly focus on identifying opportunities to expand third-party business and deliver incremental industry infrastructure solutions to the market. We have a desire to invest in long haul pipelines in the Permian, both on the crude side as well as the natural gas and NGL side. Also, adding export capacity continues to be a focus for the partnership. We continue to evaluate potential investment opportunities, but remain disciplined in our approach. In Gathering and Processing segment, we remain bullish on U.S. crude and natural gas production, and are enthusiastic about the long runway of investment opportunities across all our key regions. We continue to be bullish on the Marcellus/Utica. While associated gas out of the Permian will be an important market dynamic, we continue to believe that the Northeast has the lowest cost structure for natural gas production in U.S. and will continue to provide attractive opportunities for infrastructure investments. Industry volume growth forecasts and producer commentary around increasing lateral length, lower transportation costs as new in-basin takeaway capacity comes on line and the shift to capture rich gas economics, all contribute to our belief in the long-term structural importance of the Northeast. Obviously, this confidence is backed by our real-time capital investments as we plan on commissioning Sherwood 10, Sherwood 11 and Harmon Creek gas processing plants as well as the Hopedale IV fractionated towards the end of 2018. In addition, three new additional plants supporting Antero Resources are already sanction for 2019, Sherwood 12, Sherwood 13, and Smithburg one. Site preparation has begun on this new site, named Smithburg, which is located within a couple of miles of Sherwood and includes the layout that can easily accommodate six plants for an additional 1.2 bcf of processing capacity as demand and conditions in the region dictate. We continue to execute a self-funding model and intend to finance our approximately $2 billion of organic growth without issuing equity. Our plan is to fund this growth with retained cash and debt while maintaining an investment grade credit profile and strong distribution coverage. We believe MPLX is one of the premier offerings in the midstream space and is positioned to deliver long-term sustainable distribution growth to our investors. I will now turn the call over to Pam to cover some financial highlights on the quarter. Pam?

Yes. Thanks, Mike. Turning to our financial highlights on slide nine. We reported adjusted EBITDA of $867 million and distributable cash flow of $695 million for the second quarter, both of which are quarterly records for the partnership. The Logistics and Storage segment adjusted EBITDA was $526 million, while the Gathering and Processing segment contributed $341 million in adjusted EBITDA. The bridge on slide 10 shows the change in adjusted EBITDA from the second quarter of 2017 to the second quarter of 2018. Since the prior year quarter, we increased adjusted EBITDA by $393 million. The assets and services acquired from Marathon Petroleum in the third quarter of 2017 and the first quarter of 2018, generated an increase in adjusted EBITDA of $283 million, with each of the dropdowns contribution broken out separately here on the waterfall. Excluding the impact of the dropdowns, the increase in the Logistics and Storage segments was primarily driven by record pipeline throughputs and the investments in the Bakken and the Ozark pipeline systems. The quarter also benefited from the completion of the Robinson butane cavern and the expansion of our marine fleet. Lastly, the increase in the Gathering and Processing segment was primarily driven by our record volume, but we also benefited from higher commodity prices. Slide 11 provides a summary of key financial highlights and select balance sheet information. We had approximately $3.1 billion of liquidity at the end of the quarter, with approximately $2.2 billion available on our bank revolver, and nearly $900 million available on the intercompany facility with MPC. Consistent with our intent to manage to a self-funding model, no public equity was issued in the second quarter. And our distributable cash flow supported at 1.36 times coverage for the quarter. We’re committed to maintaining a strong balance sheet. And we ended the quarter with a leverage ratio of 3.7 times, comfortably within levels appropriate for an investment grade credit profile. MPLX has a strong track record of growing distributions to unit holders. And yesterday, the Board of Directors of our general partner declared a distribution of $0.6275 per common unit. This distribution supports our prior guidance and we continue to expect 2018 calendar year distribution growth of approximately 10%. With our strong balance sheet and robust organic growth opportunities, we remain confident in our long-term value proposition for our investors. And now, let me turn the call back over to Kristina.

Thanks, Pam. Before we start the Q&A, I want to note that we will not be taking any questions today around the future plans concerning MPLX and ANDX, following the combination of the parent companies, and request you refrain from doing so. We will provide updates to the market when appropriate on this topic. Additionally, we ask that you limit yourself to one question plus one follow-up. You may reprompt for additional questions as time permits. With that, we will now open the call to questions. Operator?

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question today is from Jeremy Tonet from JP Morgan.

Good morning. I just want to start off with the L&S segments. And it seems like quite a big step up there year-over-year and quarter-over-quarter. I was wondering if you could dive in a little bit more, 2Q, what were the drivers versus 1Q of ‘18. What led to that step up? Is there seasonality or is that ratable? How should we be thinking about this level that you achieved in the quarter?

Yes, Jeremy. We’re feeling really good about our results in the quarter, specifically in L&S. As we mentioned, we had record pipeline throughputs on both the crude and the product side. Also contributing was Ozark as well as DAPL to our pipelines were a large portion of the contribution. In addition, our terminal volumes were up. Mentioned on the call that we’ve bought additional marine equipment. So, marine was contributing, and Pam mentioned the Robinson butane cavern. So, pipelines, terminals, marine and cavern activities were all contributing. So, feeling pretty good about the L&S contribution for the quarter.

Great. So that sounds like it’s pretty ratable in nature is kind of our take there I guess. Mike, you’ve also kind of discussed with the investment community kind of your thoughts on -- or looking for thoughts on what is the optimal mix of growth -- distribution growth, distribution coverage and leverage. I was just wondering if you could touch base with kind of where MPLX sees that optimal balance at this point and kind of how that's going to influence how you run the business past this year 2019 and beyond?

Yes, Jeremy. For 2019, obviously, we're not going to give that guidance at this point. You'll get that at the end of the year when we have our Analyst Day. But as you know from our previous meetings, we have been talking to investors quite a bit. And basically, we're saying self-funding is our number one goal. We want to show strong coverage. And I think you saw in our results, we're at 1.36 for the quarter, 1.33 for the first half. So, that was a commitment we made that we were going to continue to show strong coverage. Our balance sheet continues to be very strong, 3.7 debt to EBITDA as far as leverage concerns. And we're still offering pretty attractive growth in the space. But, as we've talked about, investors are not valuing that growth at the same level that they were previously. So, we'll have to talk with Gary towards the end of the year and come up with where we want to be next year. But, I don't think you're going to see any variations on the first couple of components. We want to be self-funding, we want to show good coverage, we want to have a good balance sheet, and then, we'll have to find out what's the optimum growth going forward.

Thank you. Our next question is from Shneur Gershuni from UBS.

Hi. Good morning, guys. Just a quick clarification from your prepared remarks before my questions. On slide 10, you were talking about $1 billion L&S drop and you talked about contracts and so forth. Did you have the average duration of the contracts available to share with us as well as what the typical length of the contracts are for the assets that were dropped?

Yes, Shneur. So, what we typically do is try and set up contracts at market related numbers. So, in the pipeline world, you'll typically see, 10 years as a typical pipeline commitment. Obviously, there are variations where you might have a five-year or something longer. Terminals tend to be a little shorter in duration, depending on where they are. But, our goal is to be market-related and make sure that we have terms and rates that are consistent with where the market is.

Did you have the average length of the portfolio as it stands right now?

No, I don't have that number off the top of my head, Shneur.

Yes, Shneur. This is Pam. So, the very first assets that were dropped into the partnerships would be the first to have their contracts mature. And those were a significant amount of our pipeline operations. And those were 10-year contracts. So, October 2012 is when we IPOed the partnership. So, we're looking at 2022 as kind of the first date that some of our contracts will start to mature. So, we saw the very long average life of the assets. And considering that, we just dropped $1 billion of EBITDA on the partnership here in the first quarter, and those contract lives are 10 years.

Thank you. Our next question is from Tom Abrams from Morgan Stanley.

Thanks. One quick question on Smithburg. You have one plant in [audio gap] 19 I think you indicated in your comments, but there's six in your slide that are indicated for I believe it was ‘18 and ‘19. So, I just wanted to know if that means all come in ‘20 or just what the timing is of those?

Yes, Tom. So, what we're saying there is -- let me backtrack just to orient you for a second. We said, we were going to do eight plants in 2018, five of which we've already completed. So, execution is still a key goal for us. We have three additional plans still to come on line which is Sherwood 10, 11 and Harmon Creek 1. So, that’s the 2018. We’re not giving full 2019 guidance, but we wanted to tell you, what we’ve already sanctioned in 2019 and that’s the Tornado plan, which is our next plant down in the Permian Basin. And we’ve already sanctioned 12, 13 and Smithburg 1 up in the Northeast. But, we’re also commenting about a new site. You’re going to hear us talk about Smithburg more in the future. And we were telling everybody that this site itself as we go in and prepare it for additional growth, this site can handle an additional six plants. So, you’ll get more color on the full 2019 plan towards the end of this year. But we wanted to show the market, even though we’re at the midpoint of this year, we’ve already sanctioned four plants into next year. We expect to do more, we’ll give you more color on that as it plays out. And we’re obviously executing on the eight plants that we’re going to do in 2018. So, that’s what that was.

And then, my follow-up is unrelated, goes to your Permian infrastructure expansion press release. And the phrase in that, which was positioning the partnership to evolve its business model to include participation in a number of oil and gas pipelines. I just wondered, if you could elaborate a little bit on that.

Yes, Tom. I’ve said for a few calls here, one of our strategic goals is to take a very strong G&P model and expand it. So, we want to expand that model, which to me means I want to get into long haul pipelines, which can be on both the residue gas side, NGL side and as well as the G&P model. We’re also still very interested in expanding into the crude world as well down in the Permian. So, we’ve talked for a couple quarters how we continue to assess a potential crude projects, a long haul crude project that’s still in progress. Hopefully, we’ll have something shortly to tell you on that one. In addition, we did disclose that we have picked up a small equity interest in a residue pipeline out in the Permian. But really, what the comment refers to is, we’re going to expand our Permian presence. That’s a strategic goal. We want to expand the model on the G&P side. That’s a strategic goal. We want to get into more long haul pipelines. That’s a strategic goal. So, all those things we’re trying to mention and then execute on.

Does it make sense for you to have like into Cushing, now that you have Ozark out of Cushing and particularly with a Capline dynamic in a couple of years?

Yes. It’s definitely an area that we’re going to continue to look at. As you know, we’re up to 345,000 on Ozark today; we’re going to expand up to 360,000 barrels. We hope at some future date that Capline becomes an important part of the portfolio, but that continues to progress. We have nothing new to report there at this point. But, yes, I think you’re thinking about it right. We’re bullish on U.S. crude production. We’re bullish on the Permian. We want to look for opportunities, whether it be the Ozark type expansions that we’ve been doing or some other activity as far as crude pipelines to the to the Gulf Coast. We’re also very interested in exports. That’s an area that we’re going to put focus on. We’ve mentioned that we have a Texas City tank farm that we’re just starting to build out. And over time, we hope to give you guys update on how that progresses. But exports is another area that we continue to focus on.

Thank you. And we do have a follow-up question from Shneur Gershuni from UBS.

Thanks, guys. Just a follow-up and sort of building on the question that Tom just asked. In your pursuit of acquisitions in the Permian, obviously, the potential fear always with acquisitions is that you can overpay, certainly in a footprint like the Permian where there's such a lot of activity and so forth. Can you walk us through kind of your strategy around that? Have there been a bunch of assets that you have looked and have not purchased because of price? I mean, what can you do to dissuade the fears or concerns out there that you won't end up in a position where you over -- or the market fears that you've overpaid for an acquisition?

Yes, Shneur. To the first part, we are active looking to get every package that’s out there. So, we are doing a lot of asset evaluations in the Permian and elsewhere. But, you're right, there's been a lot that’s occurring in the Permian. The best way I can alleviate the fears is to tell you that our model inside the Marathon family is to stay disciplined, and that's what we continue to do. So, have we bid? Yes, we did on assets. Have we come close to winning? No, we have not. And that's partly because, we’ve taken approach that says this is how we evaluate, based on our discipline. And at the end of the day, we're not unhappy if we're not successful, if it goes for a much higher price. We continue to believe that the pricing that's occurred has been above the values that we place on the assets. So, we’ll continue to participate, we’ll look for an opportunity, but we're not going to put ourselves in a position where we overpaid for an asset.

I think, the best way to illustrate that is, we haven’t bought anything. So, we've been very capital disciplined and we'll continue to be capital disciplined, might get it right on head.

Perfect, perfect. And then, maybe one last follow-up on the Northeast. Obviously, there's a thesis out there about concerns about Northeast gas and so forth. I was wondering if you can talk about movements of rigs on your acreage in the Northeast. It looked like they were falling during the first quarter, it looks like they may have been picking up during the second quarter. Can you sort of talk about what producers are doing on your acreage, and if they're moving to wet versus dry? Any color as to how things are playing out for your acreage in the Northeast?

Yes, Shneur. I’ll give you a couple of comments. First off, obviously, we're pleased with the growth that we continue to see in the Northeast. We recognize the concept out there of associated gas in the Permian is free. And I've said many times, you can't be free. But after free, we believe the Marcellus/Utica area is the lowest cost natural gas production in the U.S. and will continue to be a growth area for us. You're seeing it in our results. To-date you're seeing it as we continue to invest capital. As I mentioned earlier, we're putting eight plants in 2018 in service, six of them are in the Northeast. We've already told you that we’ve sanctioned four plants next year, three of them are in the Northeast. As far as the specifics on rigs, I'll give you two comments. One is, obviously, you track all the parameters. But, one of the things that's common in the industry right now is the length of laterals that's being deployed in the spaces. So, you could have the same amount of rigs, or even less rigs, yet produce more gas, because you have longer laterals. And the amount of wells that are going on with pad is also important part of what's happening here. So, I wouldn't look at just that one parameter. You have to look at multiple parameters. So, rig count is important, number of wells per pad is important, length of laterals is important. So, all those things kind of come together. And what we do is we're obviously in constant communication with all of our producer customers, so that we know how to service them going forward. And we're feeling really good about the runway that we have, particularly in the Northeast, as you mentioned.

Thank you. Our next question is from TJ Schultz from RBC Capital Markets.

Just a follow-up on the Permian and your interest in long haul projects. There are obviously several projects out there. But, just from a timing perspective for those to come on line. Do you have any view, just that additional flaring would impact the outlook for any ramp on your assets, as they’re coming on line or on line now? And then, did that increase your need to or level of interest in participating in some of those gas takeaway options?

No. I don’t think that phenomenon is going to impact our plan or our strategy at this point. What we disclosed today is that we plan on building the Tornado plan, and that should be on line roughly need 2019. Hopefully, we’re on to the next project, at this point. And at a later date, we’ll be able to give you some more color, if we develop another. We’re still pretty bullish, the area -- the signal that we’re sending is, we’re going to continue to be a player in the Permian. We’re going to expand the model as we look to participate in other facets of the of the business. And hopefully, over time, continue to show you that we have more expansion into long haul pipes, additional plants and more activity down in that area. And we’re very proud of our position we have up in the Northeast, but we also want to diversify our cash flows and have a bigger and better presence in the Permian.

I guess, just a follow-up for me would be back on the distribution coverage versus growth. I mean, just more broadly, has your view changed at all on what type of distribution coverage you want, longer term in this market, or what you think the market evolves to just that would give a most comfort for investors as far as moving forward self-funding?

Yes. As I mentioned earlier, TJ. We’re committed to the self-funding model, and we’re committed to showing strong coverage. We’re north of 1.3 today. So, I think we’re giving investors what they’re looking for, as far as our model, our business model. We’re also very attentive to the balance sheet. We’re showing 3.7 on a leverage ratio. So, we’re feeling really good about that. We are continuing to evaluate what do we think is a better long-term growth? In meantime, we wanted to live up to our word of 10% average distribution growth for this year. But, I will tell you, we remain a little frustrated that our equity trades where it does when we think we’re offering the market a pretty strong midstream offering.

Our next question is from Chris Sighinolfi from Jefferies.

Mike, just wanted to follow up on the other question Shneur was asking with regard to some of the sequential movement in your process volumes. Obviously, noticed growth, and you talked about the number of plants you have in the pipe and the announcements for next year. But, looking specifically at Seneca, it looked like there was about a 55 million cubic feet a day drop sequentially from last quarter. Is that just Antero moving to dry areas or is there something else you could speak to on that? Just any color would be of help.

Yes, Chris. In that area, a couple of things are going on. As you know, Antero is concentrating on their Marcellus activity, as we talk about Sherwood and Smithburg. The Utica activity has been mostly dry related. But obviously pricing where it is today, we’re expecting movement and we are seeing some rigs move from the dry to the wet area in the Utica. I would also comment, one of our producer customers put out a big announcement at the end of June that they've acquired additional acreage in the wet area. So, I think you're going to see some additional volumes come up there. And you're right to point out that it's the one area where our utilization is not as high as in the other areas. But, we're still looking forward to some growth continuing in that area as we move forward.

Okay, thanks. And then, in terms of I think you had mentioned benefiting in the period from the rise in NGL price. Could you just remind me the aggregate NGL length at this point?

Well, the rule of thumb that we've been providing is that every $0.05 increase in the NGL price is worth about $18 million a year in bcf. And so from -- we had a nice move in NGL prices sequentially from the first quarter to the second, as well as from the second quarter of 2017 to the second quarter 2018. So, that's one way to think about it.

Thank you. Our next question is from Jerren Holder from Goldman Sachs.

Thanks. Just starting off with maybe equity earnings. What drove the distributions from equity method investments up quite a bit from the first quarter into second quarter? And is that a good runway to use going forward?

Yes. We don't typically provide that level of detail and break it out by equity method a company that we get distributions for -- from. There can be variations in timing. Obviously, that's the part of the business that we don't operate or control. And just a reminder for people, that includes some loop, low cap, and then there are other equity method investments that are not included in that particular set of drops that we made in the third quarter of last year. So, there can be some variation to that. Again, those are assets that we don't necessarily control. We don't have as much line of sight into those as we do the assets that we operate ourselves. But, there can be some variability.

Okay. And then, what were the volumes on Ozark in the second quarter, and what should we expect in the third quarter?

Yes. We don't provide that level of detail, either on the volumes by specific pipeline.

Thank you. Our next question is from Dennis Coleman from Bank of America Merrill Lynch.

Yes. Good morning. Just to maybe swing back to the other questions on the Permian and the Permian expansion, just for a minute. One of the ways that mostly producers have been able to get a foothold is through support from the sponsor. And while obviously not as a producer, I wondered just is that a possible avenue for capturing pieces of these projects that might be available to you, sponsorship or takeaway commitments from MPC?

Yes. One of the things that we look at, while we may not be a producer, we have a very big refinery in Galveston Bay that certainly has requirements and is a big purchaser of Permian based crudes, every day. So, while we're not a producer, you can look at it as a sponsor has a strong demand in that area. And to the question earlier, the way I have interest in barrels over in the Cushing and as you get Cushing, you can get anywhere. So, the sponsors is always very interested in what makes the most sense.

And then, maybe somewhat related follow-up, and I don’t know how to quite phrase this. But, there’s been a couple of big midstream packages that have transacted recently. And it seems that at perhaps a little bit more reasonable prices. And so, I guess the question is, do you think about -- you’ve announced some smaller acquisitions today. But, can you get better prices, if you’re willing to buy a $3 billion package or a $5 billion package?

Yes. Dennis, I would say, I don’t think the size of the package determines what we think the reasonable miss is of value. What I would tell you is, what I mentioned earlier is, we have a disciplined approach, we look in each asset package, we value it at a level that we think is appropriate to create shareholder value, unitolder value for our unitholders, and that’s where we bid. And when we make it to the second round, we continue to due-diligence and fine tune our numbers. And Gary mentioned it earlier, at the end of the day, we’re going to stay disciplined. Whether it’s a small package or a large package, we’re interested in looking at all the packages out there. If we think we can acquire them and create value, then we’re going to bid at the number that that makes sense for us.

Our next question is from Matthew Phillips from Guggenheim.

A couple model questions. The Woodpat expansion and the Ozark expansion contributed materially during 2Q or is it more of a 3Q event?

Yes. Definitely, it was a nice contribution in the second quarter, and we expect the volumes will continue to ramp up. So, going from 3.45 to 3.60 is really -- that’s been at the tail end of the development. So, we would expect to continue to see some benefit in higher volumes, prospectively.

And then, on the G&P side, the Mariner East 1 shut-in impact volumes at all? I mean, frac utilization and G&P utilization were both up. But, is that lower than it should have been due to the shut-in?

Yes. ME 1 shut-in had a smaller impact on us. We did have to obviously arrange for more railcar movements on the C3 plus. Ethane had to get diverted to additional line. So, it did have some impact to us. I would not say it was a major impact, but it did have a little bit of an impact on us.

Our next question is from Michael Blum from Wells Fargo.

Follow-up on the same topic. I wanted to hear your thoughts just more broadly on the NGL takeaway situation in the Northeast and to the extent that Mariner East 2 and 2X are delayed further for any reason. Is there a point where you see they’re becoming an issue in terms of NGL takeaway where even rail doesn’t support the growth that’s going on there?

Yes. Obviously, we’re very supportive of ME 2 starting up. And we’ve said many times in the past that it’s not impacting us at this point. We don’t see it impacting us in the near future. But, you’re right, Michael. At some point, if the delays were to continue to occur, we would have to adjust. The way we’ve been handling the growth to-date is we’ve been just handling additional rail cars at our Hopedale Complex. As you know, we’re in the process of building Hopedale IV, expect that to come on line towards the end of the year in the fourth quarter. So, we continue to see NGL growth in the area. And we're looking forward to ME 2 coming on line. If it doesn't, then, we obviously have to continue to adjust our planning. To date, it hasn't had any impact on us, and we'll just keep an eye on the situation and keep you updated as time progresses.

Your next question is from Ross Payne from Wells Fargo.

How are you doing, guys? Gary, you mentioned earlier that leverage could potentially get lower, and you're obviously at very attractive 3.7 times right now. Pam, is that kind of a range we can expect in the future, or can we see that maybe tick down and obviously both or below recent targets of 4ish or slightly below? Thanks.

Yes. So, we're committed to maintaining an investment grade credit profile. What you said is, we're comfortable around 4. We're really committed to also not issuing equity. So, there could be quarters where you could see these leverage tick up even higher than 4, and we'd be comfortable with that. So, long as we also had the view that we would be able to manage the total leverage around the low 4s. We know that the investors really prefer something at 4 or less. So, we plan to maintain a pretty conservative view there. But, again, it's a balance between not wanting to issue equity and maintaining an appropriate leverage profile. And that will really all depend on the earnings profile, the cash flow profile, the business, and the organic opportunities that we see ahead of us. And what we have said though, Ross, is if we found ourselves in a situation where we had a significant strategic acquisition and we needed equity funding, we would pursue the equity funding, if we had the right opportunity where we felt it was the right thing to do to maintain that investment grade credit profile.

Great.

But, beyond that, we always have the option as the sponsors to step in if it makes sense. And that's one of the things that I still am amazed that the investment community has not given us credit for is our growth profile is one of the best in the business, but the risk profile is one of the lowest in the business. If you look at the risk profile, due to having a very strong sponsor supporting MPLX that has not been recognized, I don't believe in our equity value. And that's something that I think certainly needs to be to recognized. And I think we can certainly justify a much higher multiple than what we're achieving today.

Gary, that's a good point. And I mean, we've seen other guys like enterprise have sponsors that step in as needed and that certainly adds a big backstop to needed growth when you need it .

Thank you.

Thank you. Our next question is from Craig Shere from Tuohy Brothers.

Good morning. Keeping takeaway constraints in perspective, ethane pricing has really rallied last couple of months. Could you discus how much uplift you might have across your system and the G&P side, if you're in full ethane recovery? And that would be incremental to the $0.05 NGL price sensitivity to 18 million bcf impact, was this?

Yes, Craig. So, we haven't given much color on the breakdown between C2s and C3s in our system. Pam gave kind of a rule of thumb as to where we see liquids on the equity side. What really matters to us in that regard is as ethane becomes stronger, much more value is created for the producers and we get the follow-on effects of additional growth in the wet area as people were mentioning earlier. The dry economics have been good, because you get a lot of volume. But the wet economics are obviously supported by the NGL pricing. And as all the pricing, you’re mentioning C2s, but as C2s, C3s, C4s, as all that pricing continues to move up, you start to move more economics towards the wet side. We remain bullish in general on NGLs. But, I think you’re hitting just one component of it. But, I think, if you put the composite of it together, it’s been a good story for us.

Any specific contribution that might have on the fractionation side?

Well, I think one of the things that we just talked about is we are in the process of adding two de-ethanizing plans before the end of the year. One at our Sherwood Complex and one in our Harman Creek Complex. So, you’re right. I’m kind of agreeing with you that as ethane gets stronger, we’ll have more opportunities to do de-ethanizers. We have a couple committed to towards the end of this year. And as the basin continues to grow and there’s more recoverable ethane, we think that’ll provide us much more opportunity as well.

Thank you. [Operator Instructions].

All right. Well, it looks like we don’t have any other questions in the queue. So, thank you for joining us today. And we thank you for your interest in MPLX. Should you have additional questions or would like clarification on any topics discussed on the call today, our team will be available to take calls as well. Thank you, operator.

Thank you. And this does conclude today’s conference. You may disconnect at this time.