Welcome to the MPLX Second Quarter 2019 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. And later, we will conduct a question-and-answer session. [Operator Instructions] Please note that this conference is now being recorded. And I would now like to turn the call over to Kristina Kazarian. Kristina, you may begin.

Good morning, everyone, and welcome to the MPLX second quarter 2019 earnings webcast and conference call. The synchronized slides that accompany this call can be found on ww.mplx.com under the Investor tab. On the call today are Gary Heminger, Chairman and CEO; Mike Hennigan, President; Pam Beall, Chief Financial Officer, and other members of the management 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 our filings with the SEC. Now, I will turn the call over to Gary Heminger for opening remarks.

Thanks, Kristina. Good morning and thank you for joining our call. I'm pleased to report that MPLX once again delivered solid results with second quarter adjusted EBITDA of $920 million. Our distributable cash flow was $741 million for the quarter, and we continue to maintain a strong financial profile with adjusted distribution coverage of 1.36 times and leverage of 3.9 times. We successfully closed our acquisition of Andeavor Logistics. This acquisition simplifies MBC's midstream structure into one public company, allowing us to high grade our commercial opportunities and creating a lot, leading large scale diversified midstream company anchored by fee based cash flows. We also progressed an impressive slate of high return projects, which are expected to advance our strategy of creating integrated crude oil and natural gas logistics systems from the Permian to the U.S. Gulf Coast. Mike will provide more detail of these investments later on the call. But these projects demonstrate our ability to leverage our growing Permian gathering and processing operations into downstream projects to support MPC's Gulf Coast refineries as well as the growing export market. Turning to Slide 4, I would like to take a moment to discuss our strategic initiatives for MPLX. First, we expect to streamline our capital expenditures focusing on the most attractive returns. Second, we are working with MPC on a portfolio optimization initiative, which could include potential asset divestitures. Third, we plan to use the proceeds from any divestitures for general purposes such as investments and high return projects, as well as debt reduction. We believe these initiatives will help MPLX continue to be one of the best positions midstream platforms in the industry for long term value creation. With that, let me turn the call over to Mike.

Thanks, Gary. Following up on Gary's comments, as we progress through integrating these two companies, there's two points I want to elaborate on. First, we play in the high grade our capital spending program, MPLX stands alone growth CapEx for 2020 was targeted at $2 billion, ANDX's standalone growth CapEx target for 2020 was approximately $600 million. As we look forward to 2020, we will be looking to spend less than the combined $2.6 million. Our focus will be on the highest return projects across the combined portfolio. Additionally, we often get the question on our EBITDA outlook for 2020. Producer plans for 2020 will be better defined towards the end of the year, given our decision a high grade the growth program and engagement with MPC on portfolio optimization, which could include asset divestitures, we do not plan to provide an update at this time. We expect to continue or just in time gathering and processing build out strategy as we work through the year and build conviction around our key producer customer growth plans for 2020. In addition, we continue to move our capital investments towards the LNS side of the business. In 2018, 85% of our capital is directed to the GMP business. In 2019, we move that ratio to approximately 50/50 and our expectation in 2020 is to spend the majority of our capital in the LNS business. Moving to Slide 5, we highlight the progress on our strategies create integrated crude oil and natural gas logistics system from the Permian to the Gulf Coast. During the second quarter, we announced that we reached a final investment decision to move forward the design and construction of the Whistler natural gas pipeline after having secured sufficient firm transportation agreements with shippers. This joint venture project has been…

Thanks, Mike. Turning to our financial highlights on Slide 8. We reported adjusted EBITDA of $920 million for the second quarter. Total logistics and storage segment adjusted EBITDA was $569 million, while the gathering and processing segment contributed $351 million in adjusted EBITDA. For the quarter, we generated $741 million of distributable cash flow, and we will return for the quarter $529 million to our MPLX unitholders. Before taking into account, distributions declared to convert it ANDX unitholders post close up the transaction. This provided adjusted distribution coverage of 1.36 times and resulted in $212 million have retained distributable cash flow to help fund our capital investment programs. Likewise, distributable cash flow of nearly $1.5 billion for the first six months of 2019 resulted in $405 millions of retain distributable cash flow. The bridge on Slide 9 shows the change in adjusted EBITDA from the second quarter of 2018 to the second quarter of 2019. Since the prior year quarter, we increased adjusted EBITDA by $53 million. The $43 million increase in logistics and storage segment was primarily driven by higher crude oil and product volumes, partially offset by a precautionary shutdown of our Ozark pipeline for about five days. On a sequential basis, second quarter logistics and storage segment results were impacted by $10 million of higher refining logistics project related expenses. Historically, project related expenses in the second quarter are higher than the first quarter, due to more work planned in the warmer months, particularly at MPC's Midwest refineries. $10 million increase in gathering and processing segments adjusted EBITDA was primarily driven by strong growth in gathered, process and fraction aided volumes from new assets placed into service over the last year. These benefits were partially offset by an estimated $30 million impact, due to lower weighted average…

Thanks, Pam. As we open the call for questions, we ask that you limit yourself to one question plus one follow-up. You may be prompt for additional questions as time permits. And with that, we will now open the call to questions. Operator?

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

Hi, good morning. Just want to start off with the Sherwood plant here being hope Antero push back a little bit just. Curious how the agreements work with and here if they have the ability to push back further or what's your competence level I guess at this timeline? And are there any financial guarantees for the delays or just how that contractually work?

So Jeremy, this is Mike. We're working cooperatively within Antero to startup Sherwood 12 and 13 in the fourth quarter. It is delayed a little bit but that's mainly because Sherwood 1 through 11 are running terrific rates and we're able to handle all the gas. So cooperatively we're delaying a little bit to reduce operating costs. But as soon as we are in a position to put those on, that's what we're anticipating doing. So it's more of an optimization than anything. But we are in sync with them to be starting up 12 and 13 towards the end of the year.

That's helpful. Thanks. And I might have missed it in the remarks or in the presentation. But just with regards to Swordfish and Apollo, if there's anything you can update us with on those projects?

Yeah, on the first one on Swordfish, we did not receive enough commitments for us to go forward FID. I mean one of the things that we maintain is we're going to have capital discipline and not deploy capital unless we believe we're going to get a high return. So at this point, you know, we put Swordfish a little bit on the back burner. As far as Apollo, if you look in our materials, we've only shown the plants through 2020. Apollo is now moved into 2021. Preakness is kind of going in front of it as far as our Permian growth. So Preakness will be starting up in the early part, first half of 2020 and Apollo has moved back a little bit. So very bullish on the Permian growth as far as processing plants, but you know, depending on the producer profiles, you can see those timings move around a little bit.

Great. That’s it for me. Thank you.

You’re welcome.

Thank you. And our next question is from Shneur Gershuni from UBS.

Hi, good morning, everyone. Maybe to start off a little bit here, totally appreciate the fact that you literally just closed the merger and just getting a chance to look at the books and so forth. And so obviously, there’s no 2020 guidance that you’re putting out there and you’re waiting till later in the year. But do you have a sense of like, kind of like what the floor would be for kind of legacy MPLX earnings for 2020? Is there kind of some sort of a sensitivity that you can sort of share with us?

Shneur, this is, Mike. We don’t have a floor that we’re willing to share at this point. As I said in the prepared remarks, you and you just highlight it, we just closed the deal. I’ll tell you our first – our first focuses on looking at the capital program for 2020. I mentioned that, we have about a 2 billion plan at the MPLX level, $600 million at the AMDX level. And our first focus is going to be high grading that portfolio such that our goal is to spend less than the two six and get ourselves in an even better return position with the combined portfolio. So that’s the first immediate thing that we’re going to concentrate on. To your point on what 2020 looks like as far as volumes, et cetera. Many people have asked this question about the Northeast volumes are volumes overall. And I continue to iterate that look, we’re very aware of the theme of producers going to live within cash flow. We know that that’s a real phenomenon in 2020 or coming into 2020. I keep saying that kind of fits our strategy, particularly in the Northeast. As we’re looking to diversify the portfolio and deploy more capital say in the Permian or in other growth areas, or in the LNS side of the business and some of these long haul pipelines, investing a little less capital in the Northeast fits what we’re trying to accomplish. We still feel really good about the position up there. The fact that produces live within cash flow, puts us in a position where the Northeast will be generating free cash flow and be a cash generator so that we can deploy that capital in other high return projects, across our portfolio.

Okay. Appreciate the color, Mike, maybe if we can sort of unpack of the CapEx a little bit further. In your prepared remarks, I think you mentioned that you’re operating multiple basis, if I do my math right, it looks like a basins – eight basins looking like you want to reduce your footprint potentially through asset sales. Are you able to discuss I guess the order of magnitude of the type of reduction in CapEx which you’re thinking? And if not, that, is there a way that you could rank the priorities in terms of spend outside of the Permian and outside of the Marcellus in terms of what other basins you think that there’s capital opportunities?

Yes, Shneur. I can’t give you a lot of color there because we really just don’t know yet as to where we’re going to put our emphasis. What we do believe is, we’re currently as you said, in eight basins strategically, we want to concentrate some of the capital in some of those basins and we’ve been very open about the Northeast and Permian be in our concentration areas. Other than that, we’re going to work with producers throughout the remainder of this year, look at what 2020 looks like. I would point out that this program is opportunistic. We have a good balance sheet. We’re not doing for selling or anything like that. But we are going to evaluate the portfolio because we have a large asset mix at this point. And we want to take a look at it and see what makes sense for us as far as an opportunity to divest some assets and take those proceeds and either use them to deploy into our other high return projects or reduce debt or some other ideas that we have on the financial side of the business. So that’s kind of our first focus. I think you said it very well to start out, though we just closed, that’s what we’re going to get after. We’re going to look at the capital. We’re going to look at the asset base. We’re going to try and optimize free up some cash if the market allows that and move forward on optimizing our portfolio.

So that makes perfect sense. And if I can just sneak in a third question. In the optimization initiatives that you had mentioned, definitely with respect, as it tells, the proceeds, you’d mentioned towards debt reduction and general corporate purposes. Just curious if buybacks is part of the equation as well, too, because as I sort of think about it, if you sell an asset that’s cash flowing, your coverage would effectively decline unless you were to take out a corresponding amount of units. Just wondering if that was part of the thought process to try and keep things coverage neutral?

Yeah, absolutely, Shneur. It’s definitely part of the process. We will have a balance approaches as we look at it. And you hit it on the head all those levers are open to us. I just didn’t mention that as one but you know the gamut of what we can look at. Redeploying capitals on the table, debt reductions on the table, unit buybacks on the table, all the financial levers that we have will be available to us.

Perfect. Thank you very much, guys. Really appreciate the color today.

You’re welcome.

Thank you. Our next question is from Spiro Dounis from Credit Suisse.

Hi, good morning, everyone. Maybe you start off with BANGL we could, sounds like that’s progressing pretty well here should hear something soon. But also heard you say that; you won’t progress any projects here unless you get the right return. So just maybe in that context, you just probably a little color on, I guess what’s still being hammered out there with potential customers on the system?

Yes, Spiro, let me back up for a second and just give you a little more color. We’ve been working on four long haul pipeline projects that we’ve been talking about over the last couple quarters. Wink-to-Webster, Capline and Whistler are all now signed deals executed at that level and moving on to the construction phase. Feel very strongly about all those projects going to give us really good returns. BANGL is the fourth that we’re still very optimistic about. But like you said, we’re maintaining discipline and we’re re-evaluating what the market looks like as far as growth patterns. So we’re still optimistic we’re going to get there, but we’re continuing to work through some of the details. Some of the cost estimates, working with the partners that we’re dealing with. Still think the project makes a lot of sense. We believe that Sweeney hub and, in that area, that is an alternative to Mont Belvieu, we’ll continue to build out and we’re working with the partners in that area to define the project to a point that we could go forward.

Got it. Appreciate that. And then just as far as the asset sale project where it goes, it sounds like you’re coordinating to some degree with MPC here. And so my question is really on two fronts, one, given that a lot of your assets are integrated with their assets. Should we assume that if there is a sale at the MPC level then you sort of midstream assets attached to that would sort of go with it, and then you’d be selling along in that process? And then sort of alternatively to that, obviously MPC still has some extreme assets that it might look to unload, should we consider those maybe more near term drop down candidates now?

Spiro, this is Gary. I think the best way to look at this and I don’t want everybody to misinterpret, what’s the way we stated that’s what we’re working with MPC to optimize. You absolutely ask the right question. No, we have several assets now, were Capline has not as ever been dropped. We have these new assets, and MPC is investing in some of these assets on the front end to ensure we have better coverage at the MPLX level before we drop these in and kind of drop them in and adjust in time basis. And that to your second point, you’re absolutely right. Some all of them have an overlap with MPC. So it’s not that MPC from a governance standpoint is looking over MPLX shoulder is we have to work together. Mike is working together with the people who run the segment assets within MPC, to see what is the best way to optimize at the timing to bring those as you call them further drops, whether it’s further drops or whether we invest up front in some of these high return projects, we are just looking at the way to optimize that.

Got it.

It’s Mike. Let me just add one thing to Gary’s comment which gets under appreciated. MPLX, gets tremendous value by being a sponsored MLP by working in coordination with MPC as Gary just mentioned. I mean each of the projects that I just mentioned Wink-to-Webster, Capline and Whistler, really, really strong projects, but they’re also part of the integrated model that MPC has. So MPLX is benefiting from the fact that we can work with MPC and developing those types of projects. I think that gets missed sometimes in the marketplace.

Yeah, no, that’s fair. Appreciate all the color. Thanks, guys.

You’re welcome.

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

Thanks. First questions kind of related to BANGL. So should we assume that the sort of the downstream investments that you’ve identified like the frac some of the export plans that you have are effectively contingent on BANG? So if BANGL go, if BANGL does not reach FID, those also, just want to clarify that?

Yeah, Michael, there are actually three distinct pieces, but all together integrated, we've been calling it BANGL. But you have a very good point, they are separate pieces as well. So the pipeline gets into the frac, the frac is a separate piece and ultimately the export is a separate piece. In fact, our discussions today we have different partners in different segments of that project. But I think it also explains, you know, to the question that was asked earlier, you know, it's much more complex, you know, Whistler, you know, is the natural gas line that goes from Waha, Agua Dulce pretty straightforward one product, natural gas. You know, BANGL involves, you know, wide grade NGOs. So there's that thing, you know, component to it, propane, butane, you know, natural gasoline, et cetera. So there's a much more of a mix in the products, as well as the point that you're making, which is, you know, there's essentially three pieces to it. So think of them as separate. Our goal is to integrate the whole stream so that we go from wellhead all the way to the export facility. But like I said, there are different partners and a little more complexity in each of the areas, which is just adding a little bit of the time to it to get that to closure.

Okay, great. And then my second question is just kind of a general question on the LNS segment. And the question is, how do we think about just the underlying organic growth rate for that business meaning excluding any growth, capital investment over the long term. Should that business decline? Will it grow? Will it stay flat? Just any color you can provide that would be great?

Yeah, so two pieces there, Michael, I'll tell you. Number one, one of our concentrations, in fact, the head of our BD group knows number one goal is getting more returns out of existing assets. And to your point about not deploying capital, our high focus is take the assets that we have, where you don't have to deploy capital and get better returns. Obviously, you know, in that business, we also have some structural things that bring some value, you know, tariffs, movements, et cetera, et cetera. And then, you know, the point that you weren't alluding to, but I will say, you know, we do look to divest and to deploy capital, not the deploy capital in a way where we can bolt-on to existing assets and create much more value. The expansion of Ozark as an example, last year has been a terrific project for us. Existing assets that we expand it to create a lot of value for us, not only through Ozark through the rest of the crude system in that area. So higher utilization, using existing assets, looking for bolt-ons, that's all part of the LNS system. And then all the way to Greenfield assets that we just talked about, you know, the long haul pipes are LNS assets that are Greenfield.

Great. Thank you.

You're welcome.

[Operator Instructions]

Alright, operator, are there any other questions in the queue?

No further questions at this time.

Thank you for joining us today and thank you for your interest in MPLX. Should you have additional questions or would like clarifications on any of the topics discussed this morning, our IR team will be available to take your calls. Have a great day.

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