Attached files
file | filename |
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EX-32.2 - EXHIBIT 32.2 - MPLX LP | mplx-2017930xex322.htm |
EX-32.1 - EXHIBIT 32.1 - MPLX LP | mplx-2017930xex321.htm |
EX-31.2 - EXHIBIT 31.2 - MPLX LP | mplx-2017930xex312.htm |
EX-31.1 - EXHIBIT 31.1 - MPLX LP | mplx-2017930xex311.htm |
EX-10.3 - EXHIBIT 10.3 - MPLX LP | mplx-2017930xex103.htm |
EX-10.2 - EXHIBIT 10.2 - MPLX LP | mplx-2017930xex102.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________
FORM 10-Q
_____________________________________________
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended September 30, 2017
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-35714
_____________________________________________
MPLX LP
(Exact name of registrant as specified in its charter)
_____________________________________________
Delaware | 27-0005456 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
200 E. Hardin Street, Findlay, Ohio | 45840 | |
(Address of principal executive offices) | (Zip code) |
(419) 421-2414
(Registrant’s telephone number, including area code)
_____________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | x | Accelerated filer | ¨ |
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Emerging growth company | ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No x
MPLX LP had 407,066,320 common units and 8,307,473 general partner units outstanding at October 27, 2017.
MPLX LP
Form 10-Q
Quarter Ended September 30, 2017
INDEX
Page | |
Unless the context otherwise requires, references in this report to “MPLX LP,” “the Partnership,” “we,” “our,” “us,” or like terms refer to MPLX LP and its subsidiaries, including MPLX Operations LLC (“MPLX Operations”), MPLX Terminal and Storage LLC (“MPLX Terminal and Storage”), MarkWest Energy Partners, L.P. (“MarkWest”), MarkWest Hydrocarbon, L.L.C. (“MarkWest Hydrocarbon”), MarkWest Pioneer, L.L.C. (“MarkWest Pioneer”), MPLX Pipe Line Holdings LLC (“Pipe Line Holdings”), Marathon Pipe Line LLC (“MPL”), Ohio River Pipe Line LLC (“ORPL”), Hardin Street Marine LLC (“HSM”), Hardin Street Transportation LLC (“HST”), Woodhaven Cavern LLC (“WHC”) and MPLX Terminals LLC (“MPLXT”). We have partial ownership interests in a number of joint venture legal entities, including MarkWest Utica EMG, L.L.C. (“MarkWest Utica EMG”) and its subsidiary Ohio Gathering Company, L.L.C. (“Ohio Gathering”), Ohio Condensate Company, L.L.C. (“Ohio Condensate”), Wirth Gathering Partnership (“Wirth”), MarkWest EMG Jefferson Dry Gas Gathering Company, L.L.C. (“Jefferson Dry Gas”), Sherwood Midstream LLC (“Sherwood Midstream”), Sherwood Midstream Holdings LLC (“Sherwood Midstream Holdings”), MarEn Bakken Company, LLC (“MarEn Bakken”), Johnston County Terminal, LLC (“Johnston Terminal”), Guilford County Terminal Company, LLC (“Guilford Terminal”), LOOP LLC (“LOOP”), LOCAP LLC (“LOCAP”), Illinois Extension Pipeline Company, L.L.C. (“Illinois Extension”) and Explorer Pipeline Company (“Explorer”). References to “MPC” refer collectively to Marathon Petroleum Corporation and its subsidiaries, other than the Partnership. Unless otherwise specified, references to “Predecessor” refer collectively to HSM’s, HST’s, WHC’s and MPLXT’s related assets, liabilities and results of operations prior to the dates of their respective acquisitions effective January 1, 2014 for HSM, January 1, 2015 for HST and WHC and April 1, 2016 for MPLXT.
1
Glossary of Terms
The abbreviations, acronyms and industry technology used in this report are defined as follows.
ATM Program | A continuous offering, or at-the-market program, by which the Partnership may offer common units in amounts, at prices and on terms to be determined by market conditions and other factors at the time of any offerings |
Bbl | Barrels |
Bcf/d | One billion cubic feet of natural gas per day |
Btu | One British thermal unit, an energy measurement |
Condensate | A natural gas liquid with a low vapor pressure mainly composed of propane, butane, pentane and heavier hydrocarbon fractions |
DCF (a non-GAAP financial measure) | Distributable Cash Flow |
Dth/d | Dekatherms per day |
EBITDA (a non-GAAP financial measure) | Earnings Before Interest, Taxes, Depreciation and Amortization |
EPA | United States Environmental Protection Agency |
FASB | Financial Accounting Standards Board |
GAAP | Accounting principles generally accepted in the United States of America |
Gal | Gallon |
Gal/d | Gallons per day |
IDR | Incentive distribution right |
Initial Offering | Initial public offering on October 31, 2012 |
LIBOR | London Interbank Offered Rate |
MarkWest Merger | On December 4, 2015, a wholly-owned subsidiary of the Partnership merged with MarkWest Energy Partners, L.P. |
mbpd | Thousand barrels per day |
MMBtu | One million British thermal units, an energy measurement |
MMcf/d | One million cubic feet of natural gas per day |
Net operating margin (a non-GAAP financial measure) | Segment revenues, less segment purchased product costs, less realized derivative gains (losses) related to purchased product costs |
NGL | Natural gas liquids, such as ethane, propane, butanes and natural gasoline |
NYSE | New York Stock Exchange |
OTC | Over-the-Counter |
Partnership Agreement | Third Amended and Restated Agreement of Limited Partnership of MPLX LP, dated as of October 31, 2016, as amended |
Predecessor | Collectively: - HSM’s related assets, liabilities and results of operations prior to the date of its acquisition, March 31, 2016, effective January 1, 2015. - HST’s, WHC’s and MPLXT’s related assets, liabilities and results of operations prior to the date of the acquisition, March 1, 2017, effective January 1, 2015 for HST and WHC and April 1, 2016 for MPLXT. |
Realized derivative gain/loss | The gain or loss recognized when a derivative matures or is settled |
SEC | United States Securities and Exchange Commission |
SMR | Steam methane reformer, operated by a third party and located at the Javelina gas processing and fractionation complex in Corpus Christi, Texas |
Unrealized derivative gain/loss | The gain or loss recognized on a derivative due to changes in fair value prior to the instrument maturing or settling |
VIE | Variable interest entity |
WTI | West Texas Intermediate |
2
Part I—Financial Information
Item 1. Financial Statements
MPLX LP
Consolidated Statements of Income (Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(In millions, except per unit data) | 2017 | 2016(1) | 2017 | 2016(1) | |||||||||||
Revenues and other income: | |||||||||||||||
Service revenue | $ | 299 | $ | 250 | $ | 845 | $ | 712 | |||||||
Service revenue - related parties | 276 | 253 | 801 | 676 | |||||||||||
Rental income | 69 | 77 | 208 | 218 | |||||||||||
Rental income - related parties | 70 | 68 | 207 | 172 | |||||||||||
Product sales | 217 | 157 | 611 | 394 | |||||||||||
Product sales - related parties | 2 | 2 | 6 | 8 | |||||||||||
Gain on sale of assets | — | 1 | 1 | 1 | |||||||||||
Income (loss) from equity method investments | 23 | 6 | 29 | (72 | ) | ||||||||||
Other income | 2 | 2 | 5 | 5 | |||||||||||
Other income - related parties | 22 | 22 | 69 | 67 | |||||||||||
Total revenues and other income | 980 | 838 | 2,782 | 2,181 | |||||||||||
Costs and expenses: | |||||||||||||||
Cost of revenues (excludes items below) | 129 | 122 | 381 | 329 | |||||||||||
Purchased product costs | 170 | 117 | 441 | 310 | |||||||||||
Rental cost of sales | 19 | 13 | 44 | 42 | |||||||||||
Rental cost of sales - related parties | — | — | 1 | 1 | |||||||||||
Purchases - related parties | 114 | 109 | 330 | 286 | |||||||||||
Depreciation and amortization | 164 | 151 | 515 | 438 | |||||||||||
Impairment expense | — | — | — | 130 | |||||||||||
General and administrative expenses | 59 | 56 | 174 | 172 | |||||||||||
Other taxes | 14 | 12 | 40 | 37 | |||||||||||
Total costs and expenses | 669 | 580 | 1,926 | 1,745 | |||||||||||
Income from operations | 311 | 258 | 856 | 436 | |||||||||||
Related party interest and other financial costs | 1 | — | 1 | 1 | |||||||||||
Interest expense (net of amounts capitalized of $6 million, $7 million, $24 million and $21 million, respectively) | 77 | 51 | 217 | 158 | |||||||||||
Other financial costs | 15 | 13 | 40 | 37 | |||||||||||
Income before income taxes | 218 | 194 | 598 | 240 | |||||||||||
Provision (benefit) for income taxes | 1 | — | 3 | (12 | ) | ||||||||||
Net income | 217 | 194 | 595 | 252 | |||||||||||
Less: Net income attributable to noncontrolling interests | 1 | 2 | 3 | 3 | |||||||||||
Less: Net income attributable to Predecessor | — | 51 | 36 | 149 | |||||||||||
Net income attributable to MPLX LP | 216 | 141 | 556 | 100 | |||||||||||
Less: Preferred unit distributions | 16 | 16 | 49 | 25 | |||||||||||
Less: General partner’s interest in net income attributable to MPLX LP | 86 | 51 | 222 | 136 | |||||||||||
Limited partners’ interest in net income (loss) attributable to MPLX LP | $ | 114 | $ | 74 | $ | 285 | $ | (61 | ) | ||||||
Per Unit Data (See Note 6) | |||||||||||||||
Net income (loss) attributable to MPLX LP per limited partner unit: | |||||||||||||||
Common - basic | $ | 0.29 | $ | 0.22 | $ | 0.75 | $ | (0.19 | ) | ||||||
Common - diluted | 0.29 | 0.21 | 0.75 | (0.19 | ) | ||||||||||
Weighted average limited partner units outstanding: | |||||||||||||||
Common - basic | 394 | 341 | 378 | 324 | |||||||||||
Common - diluted | 395 | 346 | 381 | 324 | |||||||||||
Cash distributions declared per limited partner common unit | $ | 0.5875 | $ | 0.5150 | $ | 1.6900 | $ | 1.5300 |
(1) | Financial information has been retrospectively adjusted for the acquisition of HST, WHC and MPLXT from MPC. See Notes 1 and 3. |
The accompanying notes are an integral part of these consolidated financial statements.
3
MPLX LP
Consolidated Balance Sheets (Unaudited)
(In millions) | September 30, 2017 | December 31, 2016 | |||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 3 | $ | 234 | |||
Receivables, net | 320 | 299 | |||||
Receivables - related parties | 152 | 247 | |||||
Inventories | 64 | 55 | |||||
Other current assets | 32 | 33 | |||||
Total current assets | 571 | 868 | |||||
Equity method investments | 3,997 | 2,471 | |||||
Property, plant and equipment, net | 11,922 | 11,408 | |||||
Intangibles, net | 463 | 492 | |||||
Goodwill | 2,245 | 2,245 | |||||
Long-term receivables - related parties | 18 | 11 | |||||
Other noncurrent assets | 22 | 14 | |||||
Total assets | $ | 19,238 | $ | 17,509 | |||
Liabilities | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 152 | $ | 140 | |||
Accrued liabilities | 202 | 232 | |||||
Payables - related parties | 317 | 87 | |||||
Deferred revenue | 3 | 2 | |||||
Deferred revenue - related parties | 42 | 38 | |||||
Accrued property, plant and equipment | 183 | 146 | |||||
Accrued taxes | 44 | 38 | |||||
Accrued interest payable | 64 | 53 | |||||
Other current liabilities | 41 | 27 | |||||
Total current liabilities | 1,048 | 763 | |||||
Long-term deferred revenue | 34 | 12 | |||||
Long-term deferred revenue - related parties | 40 | 19 | |||||
Long-term debt | 6,848 | 4,422 | |||||
Deferred income taxes | 7 | 6 | |||||
Deferred credits and other liabilities | 175 | 177 | |||||
Total liabilities | 8,152 | 5,399 | |||||
Commitments and contingencies (see Note 17) | |||||||
Redeemable preferred units | 1,000 | 1,000 | |||||
Equity | |||||||
Common unitholders - public (289 million and 271 million units issued and outstanding) | 8,457 | 8,086 | |||||
Class B unitholders (0 million and 4 million units issued and outstanding) | — | 133 | |||||
Common unitholder - MPC (95 million and 86 million units issued and outstanding) | 1,302 | 1,069 | |||||
Common unitholder - GP (23 million and 0 units issued and outstanding) | 822 | — | |||||
General partner - MPC (8 million and 7 million units issued and outstanding) | (626 | ) | 1,013 | ||||
Equity of Predecessor | — | 791 | |||||
Accumulated other comprehensive loss | (14 | ) | — | ||||
Total MPLX LP partners’ capital | 9,941 | 11,092 | |||||
Noncontrolling interests | 145 | 18 | |||||
Total equity | 10,086 | 11,110 | |||||
Total liabilities, preferred units and equity | $ | 19,238 | $ | 17,509 |
The accompanying notes are an integral part of these consolidated financial statements.
4
MPLX LP
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, | |||||||
(In millions) | 2017 | 2016(1) | |||||
(Decrease) increase in cash and cash equivalents | |||||||
Operating activities: | |||||||
Net income | $ | 595 | $ | 252 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Amortization of deferred financing costs | 38 | 34 | |||||
Depreciation and amortization | 515 | 438 | |||||
Impairment expense | — | 130 | |||||
Deferred income taxes | 2 | (16 | ) | ||||
Asset retirement expenditures | (2 | ) | (4 | ) | |||
Gain on disposal of assets | (1 | ) | (1 | ) | |||
(Income) loss from equity method investments | (29 | ) | 72 | ||||
Distributions from unconsolidated affiliates | 136 | 111 | |||||
Changes in: | |||||||
Current receivables | (20 | ) | (43 | ) | |||
Inventories | (3 | ) | (4 | ) | |||
Fair value of derivatives | (3 | ) | 28 | ||||
Current accounts payable and accrued liabilities | 6 | 64 | |||||
Receivables from / liabilities to related parties | 61 | (104 | ) | ||||
All other, net | 43 | 18 | |||||
Net cash provided by operating activities | 1,338 | 975 | |||||
Investing activities: | |||||||
Additions to property, plant and equipment | (1,004 | ) | (943 | ) | |||
Acquisitions, net of cash acquired | (249 | ) | — | ||||
Disposal of assets | 4 | — | |||||
Investments - net related party loans | 80 | 103 | |||||
Investments in unconsolidated affiliates | (690 | ) | (56 | ) | |||
Distributions from unconsolidated affiliates - return of capital | 24 | — | |||||
All other, net | (2 | ) | 4 | ||||
Net cash used in investing activities | (1,837 | ) | (892 | ) | |||
Financing activities: | |||||||
Long-term debt - borrowings | 2,661 | 434 | |||||
- repayments | (251 | ) | (1,312 | ) | |||
Related party debt - borrowings | 829 | 2,215 | |||||
- repayments | (627 | ) | (2,223 | ) | |||
Debt issuance costs | (25 | ) | — | ||||
Net proceeds from equity offerings | 483 | 510 | |||||
Issuance of redeemable preferred units | — | 984 | |||||
Distribution to MPC for acquisition | (1,931 | ) | — | ||||
Distributions to preferred unitholders | (49 | ) | (9 | ) | |||
Distributions to unitholders and general partner | (800 | ) | (612 | ) | |||
Distributions to noncontrolling interests | (4 | ) | (3 | ) | |||
Contributions from noncontrolling interests | 128 | 4 | |||||
Consideration payment to Class B unitholders | (25 | ) | (25 | ) | |||
All other, net | (8 | ) | (2 | ) | |||
Contribution from MPC | — | 225 | |||||
Distributions to MPC from Predecessor | (113 | ) | (104 | ) | |||
Net cash provided by financing activities | 268 | 82 | |||||
Net (decrease) increase in cash and cash equivalents | (231 | ) | 165 | ||||
Cash and cash equivalents at beginning of period | 234 | 43 | |||||
Cash and cash equivalents at end of period | $ | 3 | $ | 208 |
(1) | Financial information has been retrospectively adjusted for the acquisition of HST, WHC and MPLXT from MPC. See Notes 1 and 3. |
The accompanying notes are an integral part of these consolidated financial statements.
5
MPLX LP
Consolidated Statements of Equity (Unaudited)
Partnership | |||||||||||||||||||||||||||||||||||
(In millions) | Common Unit-holders Public | Class B Unit-holders Public | Common Unit-holder MPC | Common Unit-holder GP | General Partner MPC | Accumulated Other Comprehensive Loss | Non-controlling Interests | Equity of Predecessor(1) | Total | ||||||||||||||||||||||||||
Balance at December 31, 2015 | $ | 7,691 | $ | 266 | $ | 465 | $ | — | $ | 819 | $ | — | $ | 13 | $ | 692 | $ | 9,946 | |||||||||||||||||
Distributions to MPC from Predecessor | — | — | — | — | — | — | — | (104 | ) | (104 | ) | ||||||||||||||||||||||||
Contribution from MPC | — | — | 84 | — | 141 | — | — | — | 225 | ||||||||||||||||||||||||||
Contribution of MarkWest Hydrocarbon from MPC | — | — | — | — | (188 | ) | — | — | — | (188 | ) | ||||||||||||||||||||||||
Distribution of MarkWest Hydrocarbon to MPC | — | — | — | — | 565 | — | — | — | 565 | ||||||||||||||||||||||||||
Issuance of units under ATM Program | 499 | — | — | — | 11 | — | — | — | 510 | ||||||||||||||||||||||||||
Net (loss) income | (51 | ) | — | (10 | ) | — | 136 | — | 3 | 149 | 227 | ||||||||||||||||||||||||
Allocation of MPC's net investment at acquisition | — | — | 669 | — | (337 | ) | — | — | (332 | ) | — | ||||||||||||||||||||||||
Distributions to unitholders and general partner | (378 | ) | — | (98 | ) | — | (136 | ) | — | — | — | (612 | ) | ||||||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | — | (3 | ) | — | (3 | ) | ||||||||||||||||||||||||
Contributions from noncontrolling interests | — | — | — | — | — | — | 4 | — | 4 | ||||||||||||||||||||||||||
Class B unit conversion | 133 | (133 | ) | — | — | — | — | — | — | — | |||||||||||||||||||||||||
Non-cash contribution from MPC | — | — | — | — | — | — | — | 334 | 334 | ||||||||||||||||||||||||||
Equity-based compensation | 6 | — | — | — | — | — | — | — | 6 | ||||||||||||||||||||||||||
Deferred income tax impact from changes in equity | (2 | ) | — | (13 | ) | — | (2 | ) | — | — | — | (17 | ) | ||||||||||||||||||||||
Balance at September 30, 2016 | $ | 7,898 | $ | 133 | $ | 1,097 | $ | — | $ | 1,009 | $ | — | $ | 17 | $ | 739 | $ | 10,893 | |||||||||||||||||
Balance at December 31, 2016 | $ | 8,086 | $ | 133 | $ | 1,069 | $ | — | $ | 1,013 | $ | — | $ | 18 | $ | 791 | $ | 11,110 | |||||||||||||||||
Distributions to MPC from Predecessor | — | — | — | — | — | — | — | (113 | ) | (113 | ) | ||||||||||||||||||||||||
Distributions of cash received from Joint-Interest Acquisition entities to MPC | — | — | — | — | (13 | ) | — | — | — | (13 | ) | ||||||||||||||||||||||||
Issuance of units under ATM Program | 473 | — | — | — | 10 | — | — | — | 483 | ||||||||||||||||||||||||||
Net income | 212 | — | 68 | 5 | 222 | — | 3 | 36 | 546 | ||||||||||||||||||||||||||
Contribution from MPC | — | — | — | — | — | (14 | ) | — | 689 | 675 | |||||||||||||||||||||||||
Allocation of MPC's net investment at acquisition | — | — | 845 | 824 | (266 | ) | — | — | (1,403 | ) | — | ||||||||||||||||||||||||
Distribution to MPC for acquisitions | — | — | (537 | ) | — | (1,394 | ) | — | — | — | (1,931 | ) | |||||||||||||||||||||||
Distributions to unitholders and general partner | (452 | ) | — | (143 | ) | (7 | ) | (198 | ) | — | — | — | (800 | ) | |||||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | — | (4 | ) | — | (4 | ) | ||||||||||||||||||||||||
Contributions from noncontrolling interests | — | — | — | — | — | — | 128 | — | 128 | ||||||||||||||||||||||||||
Class B unit conversion | 133 | (133 | ) | — | — | — | — | — | — | — | |||||||||||||||||||||||||
Equity-based compensation | 5 | — | — | — | — | — | — | — | 5 | ||||||||||||||||||||||||||
Balance at September 30, 2017 | $ | 8,457 | $ | — | $ | 1,302 | $ | 822 | $ | (626 | ) | $ | (14 | ) | $ | 145 | $ | — | $ | 10,086 |
(1) | Financial information has been retrospectively adjusted for the acquisition of HST, WHC and MPLXT from MPC. See Notes 1 and 3. |
The accompanying notes are an integral part of these consolidated financial statements.
6
Notes to Consolidated Financial Statements (Unaudited)
1. Description of the Business and Basis of Presentation
Description of the Business – MPLX LP is a diversified, growth-oriented master limited partnership formed by Marathon Petroleum Corporation. MPLX LP and its subsidiaries (collectively, the “Partnership”) are engaged in the gathering, processing and transportation of natural gas; the gathering, transportation, fractionation, storage and marketing of NGLs; and the transportation, storage and distribution of crude oil and refined petroleum products, principally for our sponsor. References to “MPC” refer collectively to Marathon Petroleum Corporation and its subsidiaries, other than the Partnership.
The Partnership’s business consists of two segments based on the nature of services it offers: Logistics and Storage (“L&S”) which is focused on crude oil and refined petroleum products and Gathering and Processing (“G&P”) which is focused on natural gas and NGLs. See Note 9 for additional information regarding operations.
Basis of Presentation – The Partnership’s consolidated financial statements include all majority-owned and controlled subsidiaries. For non-wholly-owned consolidated subsidiaries, the interests owned by third parties have been recorded as Noncontrolling interests in the accompanying Consolidated Balance Sheets. Intercompany investments, accounts and transactions have been eliminated. The Partnership’s investments in which the Partnership exercises significant influence but does not control and does not have a controlling financial interest are accounted for using the equity method. The Partnership’s investments in a VIE in which the Partnership exercises significant influence but does not control and is not the primary beneficiary are also accounted for using the equity method.
Effective March 1, 2017, the Partnership acquired pipeline, storage and terminal businesses that are operated through Hardin Street Transportation LLC (“HST”), Woodhaven Cavern LLC (“WHC”) and MPLX Terminals LLC (“MPLXT”) (collectively with Hardin Street Marine LLC (“HSM”), “Predecessor”) from MPC. The acquisition from MPC was considered a transfer between entities under common control. Accordingly, the Partnership recorded the acquisition from MPC on its Consolidated Balance Sheets at MPC’s historical basis instead of fair value. Transfers of businesses between entities under common control require prior periods to be retrospectively adjusted to furnish comparative information since inception of common control. Therefore, the accompanying consolidated financial statements and related notes of MPLX LP have been retrospectively adjusted to include the historical results of the businesses acquired from MPC prior to the effective dates of the acquisition. See Note 3 for additional information regarding the HST, WHC and MPLXT acquisition. The accompanying financial statements and related notes present the combined financial position, results of operations, cash flows and equity of Predecessor on a historical basis. The financial statements of Predecessor have been prepared from the separate records maintained by MPC and may not necessarily be indicative of the conditions or the results of operations that would have existed if Predecessor had been operated as an unaffiliated entity.
In preparing the Consolidated Statements of Equity, net income attributable to MPLX LP is allocated to preferred unitholders based on a fixed distribution schedule, as discussed in Note 8, and subsequently allocated to the general partner and limited partner unitholders. Distributions, although earned, are not accrued until declared. However, when distributions related to the IDRs are made, earnings equal to the amount of those distributions are first allocated to the general partner before the remaining earnings are allocated to the limited partner unitholders based on their respective ownership percentages. The allocation of net income attributable to MPLX LP for purposes of calculating net income per limited partner unit is described in Note 6.
The accompanying interim consolidated financial statements are unaudited; however, in the opinion of the Partnership’s management, these statements reflect all adjustments necessary for a fair statement of the results for the periods reported. All such adjustments are of a normal, recurring nature unless otherwise disclosed. These interim consolidated financial statements, including the notes, have been prepared in accordance with the rules and regulations of the SEC applicable to interim period financial statements and do not include all of the information and disclosures required by GAAP for complete financial statements.
These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2016, as updated by our Current Report on Form 8-K filed on May 1, 2017. The results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of the results to be expected for the full year.
7
2. Accounting Standards
Recently Adopted
In October 2016, the FASB issued an accounting standards update to amend the consolidation guidance issued in February 2015 to require that a decision maker consider, in the determination of the primary beneficiary, its indirect interest in a VIE held by a related party that is under common control on a proportionate basis only. The change was effective for the financial statements for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Partnership was required to apply the standard retrospectively to January 1, 2016, the date on which the Partnership adopted the consolidation guidance issued in February 2015. The Partnership adopted this accounting standards update in the first quarter of 2017 and it did not have an impact on the consolidated financial statements.
In March 2016, the FASB issued an accounting standards update on the accounting for employee share-based payments. This update requires the recognition of income tax effects of awards through the income statement when awards vest or are settled. It also increases the amount an employer can withhold for tax purposes without triggering liability accounting. Lastly, it allows employers to make a policy election to account for forfeitures as they occur. The changes were effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Under the new guidance, the Partnership will continue estimating forfeiture rates to calculate compensation cost. The Partnership adopted this accounting standards update in the first quarter of 2017 and it did not have a material impact on the consolidated financial statements.
Not Yet Adopted
In August 2017, the FASB issued an accounting standards update to amend the hedge accounting rules to simplify the application of hedge accounting guidance and better portray the economic results of risk management activities in the financial statements. The guidance expands the ability to hedge nonfinancial and financial risk components, reduces complexity in fair value hedges of interest rate risk, eliminates the requirement to separately measure and report hedge ineffectiveness, as well as eases certain hedge effectiveness assessment requirements. The guidance is effective beginning in 2019 with early adoption permitted. The Partnership is in the process of determining the impact of this guidance, including transition elections and required disclosures, on the consolidated financial statements and the timing of adoption.
In May 2017, the FASB issued an accounting standards update to provide guidance about when changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. An entity should account for the effects of a modification unless the fair value, vesting conditions and balance sheet classification of the modified award is the same as the original award immediately before the original award is modified. The Partnership will adopt the new standard on a prospective basis beginning on January 1, 2018. The application of this new accounting standard is not expected to have a material impact on the consolidated financial statements.
In February 2017, the FASB issued an accounting standards update addressing the derecognition of nonfinancial assets. The guidance defines in-substance nonfinancial assets, and states that the derecognition of business activities should be evaluated under the consolidation guidance, with limited exceptions related to conveyances of oil and gas mineral rights or contracts with customers. The standard eliminates the previous exclusion for businesses that are in-substance real estate, and eliminates some differences based on whether a transferred set is that of assets or a business and whether the transfer is to a joint venture. The standard must be implemented in conjunction with the implementation of the revenue recognition accounting standards update, which the Partnership will implement January 1, 2018. The Partnership plans to adopt the new standard using the modified retrospective method and does not expect the application of this accounting standards update to have a material impact on the consolidated financial statements.
In January 2017, the FASB issued an accounting standards update which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the new guidance, the recognition of an impairment charge is calculated based on the amount by which the carrying amount exceeds the reporting unit’s fair value, which could be different from the amount calculated under the current method using the implied fair value of the goodwill; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The guidance should be applied on a prospective basis, and is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Partnership is in the process of determining the impact of the accounting standards update on the consolidated financial statements.
In January 2017, the FASB issued an accounting standards update to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of
8
assets or businesses. The standard is intended to narrow the definition of a business by specifying the minimum inputs and processes and by narrowing the definition of outputs. The change is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The guidance will be applied prospectively and early adoption is permitted for certain transactions. The Partnership is in the process of evaluating this accounting standards update and determining whether it will early adopt.
In November 2016, the FASB issued an accounting standards update requiring that the statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. The change is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. Retrospective application is required. The application of this accounting standards update will not have a material impact on the Consolidated Statements of Cash Flows.
In August 2016, the FASB issued an accounting standards update related to the classification of certain cash flows. The accounting standards update provides specific guidance on eight cash flow classification issues, including debt prepayment or debt extinguishment costs and distributions received from equity method investees, to reduce diversity in practice. The change is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. Retrospective application is required. The Partnership does not expect application of this accounting standards update to have a material impact on the Consolidated Statements of Cash Flows.
In June 2016, the FASB issued an accounting standards update related to the accounting for credit losses on certain financial instruments. The guidance requires that for most financial assets, losses are based on an expected loss approach which includes estimates of losses over the life of exposure that considers historical, current and forecasted information. Expanded disclosures related to the methods used to estimate the losses as well as a specific disaggregation of balances for financial assets are also required. The change is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Partnership does not expect application of this accounting standards update to have a material impact on the consolidated financial statements.
In February 2016, the FASB issued an accounting standards update requiring lessees to record virtually all leases on their balance sheets. The accounting standards update also requires expanded disclosures to help financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. For lessors, this amended guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. The change will be effective on a modified retrospective basis for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. The Partnership is currently evaluating the impact of this standard on the Partnership’s financial statements and disclosures, internal controls and accounting policies. This evaluation process includes reviewing all forms of leases, performing a completeness assessment over the lease population and analyzing the practical expedients in order to determine the best path to implementation. The Partnership does not plan to early adopt the standard. The Partnership believes the impact will be material on the consolidated financial statements as all operating leases will be recognized as a right of use asset and lease obligation. Based on results of the evaluation process to date, the Partnership also believes the impact on existing processes, controls and information systems may be material.
In January 2016, the FASB issued an accounting standards update requiring unconsolidated equity investments, not accounted for under the equity method, to be measured at fair value with changes in fair value recognized in net income. The update also requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes and the separate presentation of financial assets and liabilities by measurement category and form on the balance sheet and accompanying notes. The update eliminates the requirement to disclose the methods and assumptions used in estimating the fair value of financial instruments measured at amortized cost. Lastly, the accounting standards update requires separate presentation in other comprehensive income of the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when electing to measure the liability at fair value in accordance with the fair value option for financial instruments. The changes are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted only for guidance regarding presentation of the liability’s credit risk. The Partnership does not expect application of this accounting standards update to have a material impact on the consolidated financial statements.
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In May 2014, the FASB issued Accounting Standards Update 2014-09 which created Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“ASC 606”). The guidance in ASC 606 states that revenue is recognized when a customer obtains control of a good or service. Recognition of the revenue will involve a multiple step approach including identifying the contract, identifying the separate performance obligations, determining the transaction price, allocating the price to the performance obligations and recognizing the revenue as the obligations are satisfied. Additional disclosures will be required to provide adequate information to understand the nature, amount, timing and uncertainty of reported revenues and revenues expected to be recognized. The change will be effective on a retrospective or modified retrospective basis for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted no earlier than January 1, 2017.
The Partnership will adopt the revenue recognition standard during the first quarter of 2018. The Partnership plans to adopt the new standard using the modified retrospective method, which will result in a cumulative effect adjustment as of the date of adoption. By selecting this adoption method, the Partnership will disclose the amount by which each financial statement line item is affected by the standard in the current reporting period after adoption as compared with the guidance that was in effect before adoption.
The Partnership is currently evaluating the impact of the revenue recognition standard on its consolidated financial statements and disclosures, internal controls and accounting policies. This evaluation process includes a phased approach, the first phase of which includes reviewing a sample of contracts and transaction types across segments. This phase was completed as of September 30, 2017.
Based on the results of the first phase assessment, the Partnership has reached conclusions for all material contract types. Revenue recognition patterns will not change for fee-based or percent-of-proceeds contracts. The Partnership does expect certain amounts to be grossed up in revenue and cost of revenues as a result of implementation, specifically related to third-party reimbursements from customers and commodities received as consideration in service agreements, such as keep-whole arrangements. In the third quarter of 2017, the Partnership finalized a conclusion on the valuation of non-cash consideration received in the form of a commodity product, with the valuation being performed on the date the service performance obligation is completed.
The Partnership is in the process of finalizing the second phase of implementation, which includes the calculation of the impact of the new standard on results and the development of new policies, procedures and disclosures related to the application upon adoption. The Partnership believes third-party reimbursements included in the transaction price would have resulted in a gross up in 2016 and 2017 service revenue and cost of revenues between $300 million and $350 million annually, with no impact to net income. The Partnership will provide a summary of the total ASC 606 impact in the Annual Report on Form 10-K for the year ended December 31, 2017.
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3. Acquisitions
Joint-Interest Acquisition
On September 1, 2017, the Partnership entered into a Membership Interests and Shares Contributions Agreement (the “September 2017 Contributions Agreement”) with MPLX GP LLC (“MPLX GP”), MPLX Logistics Holdings LLC (“MPLX Logistics”), MPLX Holdings Inc. (“MPLX Holdings”) and MPC Investment LLC (“MPC Investment”), each a wholly-owned subsidiary of MPC, whereby the Partnership agreed to acquire certain ownership interests in joint venture entities indirectly held by MPC. Pursuant to the September 2017 Contributions Agreement, MPC Investment agreed to contribute: all of the membership interests of Lincoln Pipeline LLC, which holds a 35 percent interest in Illinois Extension Pipeline Company, L.L.C. (“Illinois Extension”); all of the membership interests of MPL Louisiana Holdings LLC, which holds a 40.7 percent interest in LOOP LLC (“LOOP”); a 58.52 percent interest in LOCAP LLC (“LOCAP”); and a 24.51 percent interest in Explorer Pipeline Company (“Explorer”), through a series of intercompany contributions to the Partnership for an agreed upon purchase price of approximately $420 million in cash and equity consideration valued at approximately $630 million for total consideration of $1.05 billion (collectively, the “Joint-Interest Acquisition”). The number of common units representing the equity consideration was then determined by dividing the contribution amount by the simple average of the ten day trading volume weighted average NYSE price of a common unit for the ten trading days ending at market close on August 31, 2017. The fair value of the common and general partner units issued was approximately $653 million based on the closing common unit price as of September 1, 2017, as recorded on the Consolidated Statements of Equity, for a total purchase price of $1.07 billion. The equity issued consisted of: (i) 13,719,017 common units to MPLX GP, (ii) 3,350,893 common units to MPLX Logistics and (iii) 1,441,224 common units to MPLX Holdings. The Partnership also issued 377,778 general partner units to MPLX GP in order to maintain its two percent general partner interest (“GP Interest”) in the Partnership.
Illinois Extension operates the 168-mile, 24-inch diameter Southern Access Extension (“SAX”) crude oil pipeline from Flanagan, Illinois to Patoka, Illinois, as well as additional tankage and two pump stations. LOOP owns and operates midstream crude oil infrastructure, including a deep water oil port offshore of Louisiana, pipelines and onshore storage facilities. LOOP also manages the operations of LOCAP, an affiliate pipeline system. LOCAP owns and operates a crude oil pipeline and tank facility in St. James, Louisiana, that distributes oil received from LOOP’s storage facilities and other connecting pipelines to nearby refineries and into the mid-continent region of the United States. Explorer owns and operates an approximate 1,830-mile common carrier pipeline that primarily transports gasoline, diesel, diluent and jet fuel from the Gulf Coast refining complex to the Midwest United States. The Partnership accounts for the Joint-Interest Acquisition entities as equity method investments within its L&S segment.
As a transfer between entities under common control, the Partnership recorded the Joint-Interest Acquisition on its Consolidated Balance Sheets at MPC’s historical basis, which included accumulated other comprehensive loss. The Partnership recognizes an accumulated other comprehensive loss on its Consolidated Balance Sheets relating to pension and other post-retirement benefits provided by the LOOP and Explorer joint-interests to their employees. MPLX LP is not a sponsor of these benefit plans. There were no changes to Accumulated other comprehensive loss during the period September 1, 2017 through September 30, 2017.
Distributions of cash received from the entities and interests acquired in the Joint-Interest Acquisition related to periods prior to the acquisition will be prorated on a daily basis with MPLX LP retaining the portion of distributions beginning on the closing date. All amounts distributed to MPLX LP related to periods before the acquisition will be paid to MPC. Additionally, MPLX LP has agreed to pay MPC for any distributions of cash from LOOP related to the sale of LOOP’s excess crude oil inventory. Because the future distributions or payments cannot be reasonably quantified, a liability was not recorded in connection with the acquisition. MPLX LP subsequently received distributions related to the third quarter 2017 and recorded a liability to MPC and a corresponding decrease to the general partner’s equity for $13 million, as shown on the Consolidated Statements of Equity.
There is no income associated with the Joint-Interest Acquisition included in the Consolidated Statements of Income since the September 1, 2017 acquisition date, as the Partnership accounts for these investments in arrears using the most recently available information. The Partnership’s investment balance at September 30, 2017 related to the acquired interests is approximately $645 million and reported under the caption Equity method investments on the Consolidated Balance Sheets. MPC agreed to waive approximately two-thirds of the third quarter 2017 distributions on the common units issued in connection with the Joint-Interest Acquisition. As a result of this waiver, MPC did not receive approximately two-thirds of the distributions or IDRs that would have otherwise accrued on such common units with respect to the third quarter 2017 distributions. The value of these waived distributions was $10 million.
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Acquisition of Hardin Street Transportation LLC, Woodhaven Cavern LLC and MPLX Terminals LLC
MPC contributed the assets of HST, WHC and MPLXT to newly created and wholly-owned subsidiaries and entered into commercial agreements related to services provided by these new entities to MPC on January 1, 2015 for HST and WHC and April 1, 2016 for MPLXT. Pursuant to a Membership Interests Contributions Agreement entered into on March 1, 2017 by the Partnership with MPLX GP, MPLX Logistics, MPLX Holdings and MPC Investment, each a wholly-owned subsidiary of MPC, MPC Investment agreed to contribute the outstanding membership interests in HST, WHC and MPLXT through a series of intercompany contributions to the Partnership for approximately $1.5 billion in cash and equity consideration valued at approximately $504 million (the “Transaction”). The number of common units representing the equity consideration was determined by dividing the contribution amount by the simple average of the ten day trailing volume weighted average NYSE price of a common unit for the ten trading days ending at market close on February 28, 2017. The fair value of the common and general partner units issued was approximately $503 million, as recorded on the Consolidated Statements of Equity, and consisted of (i) 9,197,900 common units to MPLX GP, (ii) 2,630,427 common units to MPLX Logistics and (iii) 1,132,049 common units to MPLX Holdings. The Partnership also issued 264,497 general partner units to MPLX GP in order to maintain its two percent GP Interest in the Partnership. MPC agreed to waive two-thirds of the first quarter 2017 distributions on the common units issued in connection with the Transaction. As a result of this waiver, MPC did not receive two-thirds of the general partner distributions or IDRs that would have otherwise accrued on such common units with respect to the first quarter 2017 distributions. The value of these waived distributions was $6 million.
HST owns and operates various private crude oil and refined product pipeline systems and associated storage tanks. As of the acquisition date, these pipeline systems consisted of 174 miles of crude oil pipelines and 430 miles of refined products pipelines. WHC owns and operates nine butane and propane storage caverns located in Michigan with approximately 1.8 million barrels of NGL storage capacity. As of the acquisition date, MPLXT owned and operated 59 terminals for the receipt, storage, blending, additization, handling and redelivery of refined petroleum products. Additionally, MPLXT operated one leased terminal and had partial ownership interest in two terminals. Collectively, these 62 terminals have a combined shell capacity of approximately 23.6 million barrels. The terminal facilities are located primarily in the Midwest, Gulf Coast and Southeast regions of the United States. The Partnership accounts for these businesses within its L&S segment.
The Partnership retrospectively adjusted the historical financial results for all periods to give effect to the acquisition of HST and WHC effective January 1, 2015, and the acquisition of MPLXT effective April 1, 2016, as required for transactions between entities under common control. Prior to these dates, these entities were not considered businesses and, therefore, there are no financial results from which to recast.
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The following tables present the Partnership’s previously reported unaudited Consolidated Statements of Income for the three and nine months ended September 30, 2016, retrospectively adjusted for the acquisition of HST, WHC and MPLXT:
Three Months Ended September 30, 2016 | |||||||||||||||||||
(In millions, except per unit data) | MPLX LP (Previously Reported) | HST/WHC | MPLXT | Eliminations(1) | MPLX LP (Currently Reported) | ||||||||||||||
Revenues and other income: | |||||||||||||||||||
Service revenue | $ | 250 | $ | — | $ | — | $ | — | $ | 250 | |||||||||
Service revenue - related parties | 153 | 28 | 72 | — | 253 | ||||||||||||||
Rental income | 77 | — | — | — | 77 | ||||||||||||||
Rental income - related parties | 29 | 13 | 26 | — | 68 | ||||||||||||||
Product sales | 157 | — | — | — | 157 | ||||||||||||||
Product sales - related parties | 2 | — | — | — | 2 | ||||||||||||||
Income from equity method investments | 6 | — | — | — | 6 | ||||||||||||||
Gain on sale of assets | 1 | — | — | — | 1 | ||||||||||||||
Other income | 2 | — | — | — | 2 | ||||||||||||||
Other income - related parties | 26 | — | — | (4 | ) | 22 | |||||||||||||
Total revenues and other income | 703 | 41 | 98 | (4 | ) | 838 | |||||||||||||
Costs and expenses: | |||||||||||||||||||
Cost of revenues (excludes items below) | 90 | 10 | 22 | — | 122 | ||||||||||||||
Purchased product costs | 117 | — | — | — | 117 | ||||||||||||||
Rental cost of sales | 11 | 2 | — | — | 13 | ||||||||||||||
Rental cost of sales - related parties | — | 1 | — | (1 | ) | — | |||||||||||||
Purchases - related parties | 84 | 4 | 24 | (3 | ) | 109 | |||||||||||||
Depreciation and amortization | 138 | 4 | 9 | — | 151 | ||||||||||||||
General and administrative expenses | 46 | 2 | 8 | — | 56 | ||||||||||||||
Other taxes | 10 | — | 2 | — | 12 | ||||||||||||||
Total costs and expenses | 496 | 23 | 65 | (4 | ) | 580 | |||||||||||||
Income from operations | 207 | 18 | 33 | — | 258 | ||||||||||||||
Interest expense (net of amounts capitalized) | 51 | — | — | — | 51 | ||||||||||||||
Other financial costs | 13 | — | — | — | 13 | ||||||||||||||
Income before income taxes | 143 | 18 | 33 | — | 194 | ||||||||||||||
Net income | 143 | 18 | 33 | — | 194 | ||||||||||||||
Less: Net income attributable to noncontrolling interests | 2 | — | — | — | 2 | ||||||||||||||
Less: Net income attributable to Predecessor | — | 18 | 33 | — | 51 | ||||||||||||||
Net income attributable to MPLX LP | 141 | — | — | — | 141 | ||||||||||||||
Less: Preferred unit distributions | 16 | — | — | — | 16 | ||||||||||||||
Less: General partner’s interest in net income attributable to MPLX LP | 51 | — | — | — | 51 | ||||||||||||||
Limited partners’ interest in net income attributable to MPLX LP | $ | 74 | $ | — | $ | — | $ | — | $ | 74 |
(1) | Represents intercompany transactions eliminated during the consolidation process, in accordance with GAAP. |
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Nine Months Ended September 30, 2016 | |||||||||||||||||||
(In millions, except per unit data) | MPLX LP (Previously Reported) | HST/WHC | MPLXT | Eliminations(1) | MPLX LP (Currently Reported) | ||||||||||||||
Revenues and other income: | |||||||||||||||||||
Service revenue | $ | 712 | $ | — | $ | — | $ | — | $ | 712 | |||||||||
Service revenue - related parties | 448 | 82 | 146 | — | 676 | ||||||||||||||
Rental income | 218 | — | — | — | 218 | ||||||||||||||
Rental income - related parties | 84 | 36 | 52 | — | 172 | ||||||||||||||
Product sales | 394 | — | — | — | 394 | ||||||||||||||
Product sales - related parties | 8 | — | — | — | 8 | ||||||||||||||
Loss from equity method investments | (72 | ) | — | — | — | (72 | ) | ||||||||||||
Gain on sale of assets | 1 | — | — | — | 1 | ||||||||||||||
Other income | 5 | — | — | — | 5 | ||||||||||||||
Other income - related parties | 78 | — | — | (11 | ) | 67 | |||||||||||||
Total revenues and other income | 1,876 | 118 | 198 | (11 | ) | 2,181 | |||||||||||||
Costs and expenses: | |||||||||||||||||||
Cost of revenues (excludes items below) | 263 | 24 | 42 | — | 329 | ||||||||||||||
Purchased product costs | 310 | — | — | — | 310 | ||||||||||||||
Rental cost of sales | 39 | 3 | — | — | 42 | ||||||||||||||
Rental cost of sales - related parties | — | 2 | — | (1 | ) | 1 | |||||||||||||
Purchases - related parties | 238 | 13 | 45 | (10 | ) | 286 | |||||||||||||
Depreciation and amortization | 407 | 12 | 19 | — | 438 | ||||||||||||||
Impairment expense | 130 | — | — | — | 130 | ||||||||||||||
General and administrative expenses | 147 | 5 | 20 | — | 172 | ||||||||||||||
Other taxes | 32 | 2 | 3 | — | 37 | ||||||||||||||
Total costs and expenses | 1,566 | 61 | 129 | (11 | ) | 1,745 | |||||||||||||
Income from operations | 310 | 57 | 69 | — | 436 | ||||||||||||||
Related party interest and other financial income | 1 | — | — | — | 1 | ||||||||||||||
Interest expense (net of amounts capitalized) | 158 | — | — | — | 158 | ||||||||||||||
Other financial costs | 37 | — | — | — | 37 | ||||||||||||||
Income before income taxes | 114 | 57 | 69 | — | 240 | ||||||||||||||
Benefit for income taxes | (12 | ) | — | — | — | (12 | ) | ||||||||||||
Net income | 126 | 57 | 69 | — | 252 | ||||||||||||||
Less: Net income attributable to noncontrolling interests | 3 | — | — | — | 3 | ||||||||||||||
Less: Net income attributable to Predecessor | 23 | 57 | 69 | — | 149 | ||||||||||||||
Net income attributable to MPLX LP | 100 | — | — | — | 100 | ||||||||||||||
Less: Preferred unit distributions | 25 | — | — | — | 25 | ||||||||||||||
Less: General partner’s interest in net income attributable to MPLX LP | 136 | — | — | — | 136 | ||||||||||||||
Limited partners’ interest in net loss attributable to MPLX LP | $ | (61 | ) | $ | — | $ | — | $ | — | $ | (61 | ) |
(1) | Represents intercompany transactions eliminated during the consolidation process, in accordance with GAAP. |
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The following table presents the Partnership’s previously reported unaudited Consolidated Statements of Cash Flows, retrospectively adjusted for the acquisition of HST, WHC and MPLXT:
Nine Months Ended September 30, 2016 | |||||||||||||||
(In millions) | MPLX LP (Previously Reported) | HST/WHC | MPLXT | MPLX LP (Currently Reported) | |||||||||||
Increase (decrease) in cash and cash equivalents | |||||||||||||||
Operating activities: | |||||||||||||||
Net income | $ | 126 | $ | 57 | $ | 69 | $ | 252 | |||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |||||||||||||||
Amortization of deferred financing costs | 34 | — | — | 34 | |||||||||||
Depreciation and amortization | 407 | 12 | 19 | 438 | |||||||||||
Impairment expense | 130 | — | — | 130 | |||||||||||
Deferred income taxes | (16 | ) | — | — | (16 | ) | |||||||||
Asset retirement expenditures | (3 | ) | (1 | ) | — | (4 | ) | ||||||||
Gain on disposal of assets | (1 | ) | — | — | (1 | ) | |||||||||
Loss from equity method investments | 72 | — | — | 72 | |||||||||||
Distributions from unconsolidated affiliates | 111 | — | — | 111 | |||||||||||
Changes in: | |||||||||||||||
Current receivables | (44 | ) | 1 | — | (43 | ) | |||||||||
Inventories | (4 | ) | — | — | (4 | ) | |||||||||
Fair value of derivatives | 28 | — | — | 28 | |||||||||||
Current accounts payable and accrued liabilities | 59 | (1 | ) | 6 | 64 | ||||||||||
Receivables from / liabilities to related parties | 15 | 3 | (122 | ) | (104 | ) | |||||||||
All other, net | 18 | 2 | (2 | ) | 18 | ||||||||||
Net cash provided by (used in) operating activities | 932 | 73 | (30 | ) | 975 | ||||||||||
Investing activities: | |||||||||||||||
Additions to property, plant and equipment | (874 | ) | (36 | ) | (33 | ) | (943 | ) | |||||||
Investments - net related party loans | 77 | (37 | ) | 63 | 103 | ||||||||||
Investments in unconsolidated affiliates | (56 | ) | — | — | (56 | ) | |||||||||
All other, net | 4 | — | — | 4 | |||||||||||
Net cash (used in) provided by investing activities | (849 | ) | (73 | ) | 30 | (892 | ) | ||||||||
Financing activities: | |||||||||||||||
Long-term debt - borrowings | 434 | — | — | 434 | |||||||||||
- repayments | (1,312 | ) | — | — | (1,312 | ) | |||||||||
Related party debt - borrowings | 2,215 | — | — | 2,215 | |||||||||||
- repayments | (2,223 | ) | — | — | (2,223 | ) | |||||||||
Net proceeds from equity offerings | 510 | — | — | 510 | |||||||||||
Issuance of redeemable preferred units | 984 | — | — | 984 | |||||||||||
Distributions to preferred unitholders | (9 | ) | — | — | (9 | ) | |||||||||
Distributions to unitholders and general partner | (612 | ) | — | — | (612 | ) | |||||||||
Distributions to noncontrolling interests | (3 | ) | — | — | (3 | ) | |||||||||
Contributions from noncontrolling interests | 4 | — | — | 4 | |||||||||||
Consideration payment to Class B unitholders | (25 | ) | — | — | (25 | ) | |||||||||
All other, net | (2 | ) | — | — | (2 | ) | |||||||||
Contribution from MPC | 225 | — | — | 225 | |||||||||||
Distributions to MPC from Predecessor | (104 | ) | — | — | (104 | ) | |||||||||
Net cash provided by financing activities | 82 | — | — | 82 | |||||||||||
Net increase in cash and cash equivalents | 165 | — | — | 165 | |||||||||||
Cash and cash equivalents at beginning of period | 43 | — | — | 43 | |||||||||||
Cash and cash equivalents at end of period | $ | 208 | $ | — | $ | — | $ | 208 |
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Acquisition of Ozark Pipeline
On March 1, 2017, the Partnership acquired the Ozark pipeline from Enbridge Pipelines (Ozark) LLC for approximately $219 million, including purchase price adjustments made in the second quarter of 2017. Based on the final fair value estimates of assets acquired and liabilities assumed at the acquisition date, the purchase price was primarily allocated to property, plant and equipment. The Ozark pipeline is a 433-mile, 22-inch crude oil pipeline originating in Cushing, Oklahoma, and terminating in Wood River, Illinois, capable of transporting approximately 230 mbpd. The Partnership accounts for the Ozark pipeline within its L&S segment.
The amounts of revenue and income from operations associated with the acquisition included in the Consolidated Statements of Income, since the March 1, 2017 acquisition date, are as follows:
(In millions) | Three Months Ended September 30, 2017 | Seven Months Ended September 30, 2017 | |||||
Revenues and other income | $ | 19 | $ | 45 | |||
Income from operations | 6 | 17 |
Assuming the acquisition of the Ozark pipeline had occurred on January 1, 2016, the consolidated pro forma results would not have been materially different from reported results.
MarEn Bakken
On February 15, 2017, the Partnership closed on a joint venture, MarEn Bakken Company, LLC (“MarEn Bakken”), with Enbridge Energy Partners L.P. in which MPLX LP acquired a partial, indirect interest in the Dakota Access Pipeline and Energy Transfer Crude Oil Company Pipeline projects, collectively referred to as the Bakken Pipeline system, from Energy Transfer Partners, L.P. and Sunoco Logistics Partners, L.P. The Partnership contributed $500 million of the $2.0 billion purchase price paid by MarEn Bakken to acquire a 36.75 percent indirect interest in the Bakken Pipeline system. The Partnership holds, through a subsidiary, a 25 percent interest in MarEn Bakken, which equates to a 9.1875 percent indirect interest in the Bakken Pipeline system.
The Partnership accounts for its investment in MarEn Bakken as an equity method investment and bases the equity method accounting for this joint venture in arrears using the most recently available information. The Partnership’s investment balance at September 30, 2017 is approximately $520 million and reported under the caption Equity method investments on the Consolidated Balance Sheets. In connection with the Partnership’s acquisition of a partial, indirect equity interest in the Bakken Pipeline system, MPC agreed to waive its right to receive incentive distributions of $1.6 million per quarter for twelve consecutive quarters, beginning with distributions declared in the first quarter of 2017 and paid to MPC in the second quarter of 2017, which was prorated to $0.8 million from the acquisition date.
Acquisition of Hardin Street Marine LLC
On March 14, 2016, the Partnership entered into a Membership Interests Contribution Agreement (the “Contribution Agreement”) with MPLX GP, MPLX Logistics and MPC Investment, each a wholly-owned subsidiary of MPC, related to the acquisition of HSM, MPC’s inland marine business, from MPC. Pursuant to the Contribution Agreement, the transaction was valued at $600 million consisting of a fixed number of common units and general partner units of 22,534,002 and 459,878, respectively. The general partner units maintain MPC’s two percent GP Interest in the Partnership. The acquisition closed on March 31, 2016 and the fair value of the common units and general partner units issued was $669 million and $14 million, respectively, as recorded on the Consolidated Statements of Equity. MPC agreed to waive distributions in the first quarter of 2016 on common units issued in connection with this transaction. As a result of this waiver, MPC did not receive general partner distributions or IDRs that would have otherwise accrued on such common units with respect to the first quarter 2016 distributions. The value of these waived distributions was $15 million.
The inland marine business, comprised of 18 tow boats and 219 owned and leased barges as of the acquisition date, which transport light products, heavy oils, crude oil, renewable fuels, chemicals and feedstocks in the Midwest and Gulf Coast regions of the United States, accounted for nearly 60 percent of the total volumes MPC shipped by inland marine vessels as of March 31, 2016. The Partnership accounts for HSM within its L&S segment.
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4. Investments and Noncontrolling Interests
Summarized financial information for the Partnership’s equity method investments for the nine months ended September 30, 2017 and 2016 is as follows:
Nine Months Ended September 30, 2017 | |||||||||||||||
(In millions) | MarkWest Utica EMG | Other VIEs | Non-VIEs | Total | |||||||||||
Revenues and other income | $ | 137 | $ | 49 | $ | 178 | $ | 364 | |||||||
Costs and expenses | 72 | 29 | 115 | 216 | |||||||||||
Income from operations | 65 | 20 | 63 | 148 | |||||||||||
Net income | 65 | 19 | 28 | 112 | |||||||||||
Income from equity method investments(1) | 6 | 7 | 16 | 29 |
Nine Months Ended September 30, 2016 | |||||||||||||||
(In millions) | MarkWest Utica EMG | Other VIEs(2) | Non-VIEs | Total | |||||||||||
Revenues and other income | $ | 165 | $ | 13 | $ | 108 | $ | 286 | |||||||
Costs and expenses | 70 | 107 | 80 | 257 | |||||||||||
Income (loss) from operations | 95 | (94 | ) | 28 | 29 | ||||||||||
Net income (loss) | 94 | (94 | ) | 28 | 28 | ||||||||||
Income (loss) from equity method investments(1) | 10 | (88 | ) | 6 | (72 | ) |
(1) | Income (loss) from equity method investments includes the impact of any basis differential amortization or accretion. |
(2) | Includes an impairment charge of $89 million for the nine months ended September 30, 2016 related to the Partnership’s investment in Ohio Condensate Company, L.L.C., which does not appear separately in this table. |
Summarized balance sheet information for the Partnership’s equity method investments as of September 30, 2017 and December 31, 2016 is as follows:
September 30, 2017 | |||||||||||||||
(In millions) | MarkWest Utica EMG(1) | Other VIEs | Non-VIEs | Total | |||||||||||
Current assets | $ | 72 | $ | 47 | $ | 379 | $ | 498 | |||||||
Noncurrent assets | 2,092 | 878 | 4,614 | 7,584 | |||||||||||
Current liabilities | 37 | 55 | 492 | 584 | |||||||||||
Noncurrent liabilities | 2 | 12 | 562 | 576 |
December 31, 2016 | |||||||||||||||
(In millions) | MarkWest Utica EMG(1) | Other VIEs | Non-VIEs | Total | |||||||||||
Current assets | $ | 45 | $ | 2 | $ | 40 | $ | 87 | |||||||
Noncurrent assets | 2,173 | 132 | 390 | 2,695 | |||||||||||
Current liabilities | 30 | 4 |