MPLX LP - FORM 10-Q - April 30, 2018

Attached files

file	filename
EX-32.2 - EXHIBIT 32.2 - MPLX LP	mplx-2018331xex322.htm
EX-32.1 - EXHIBIT 32.1 - MPLX LP	mplx-2018331xex321.htm
EX-31.2 - EXHIBIT 31.2 - MPLX LP	mplx-2018331xex312.htm
EX-31.1 - EXHIBIT 31.1 - MPLX LP	mplx-2018331xex311.htm
EX-10.13 - EXHIBIT 10.13 - MPLX LP	mplx-2018331xex1013.htm
EX-10.12 - EXHIBIT 10.12 - MPLX LP	mplx-2018331xex1012.htm
EX-10.11 - EXHIBIT 10.11 - MPLX LP	mplx-2018331xex1011.htm
EX-10.10 - EXHIBIT 10.10 - MPLX LP	mplx-2018331xex1010.htm
EX-10.9 - EXHIBIT 10.9 - MPLX LP	mplx-2018331xex109.htm
EX-10.8 - EXHIBIT 10.8 - MPLX LP	mplx-2018331xex108.htm

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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 March 31, 2018



¨	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 793,973,724 common units outstanding at April 26, 2018.

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MPLX LP

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.

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	Page
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Income (Unaudited)	3
Consolidated Statements of Comprehensive Income (Unaudited)	4
Consolidated Balance Sheets (Unaudited)	5
Consolidated Statements of Cash Flows (Unaudited)	6
Consolidated Statements of Equity (Unaudited)	7
Notes to Consolidated Financial Statements (Unaudited)	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	40
Item 3. Quantitative and Qualitative Disclosures about Market Risk	61
Item 4. Controls and Procedures	62

PART II – OTHER INFORMATION
Item 1. Legal Proceedings	63
Item 1A. Risk Factors	63
Item 2. Unregistered Sales of Equity Securities	63
Item 5. Other Information	63
Item 6. Exhibits	64
Signatures	67

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Glossary of Terms

The abbreviations, acronyms and industry technology used in this report are defined as follows.



ASC	Accounting Standards Codification
ASU	Accounting Standards Update
ATM Program	An at-the-market program for the issuance of common units
barrel	One stock tank barrel, or 42 United States gallons of liquid volume, used in reference to crude oil or other liquid hydrocarbons.
bcf/d	One billion cubic feet 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
EBITDA (a non-GAAP financial measure)	Earnings Before Interest, Taxes, Depreciation and Amortization
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
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 purchased product costs, less 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
Partnership Agreement	Fourth Amended and Restated Agreement of Limited Partnership of MPLX LP, dated as of February 1, 2018
Predecessor	Collectively: - The related assets, liabilities and results of operations of Hardin Street Marine LLC (“HSM”) prior to the date of the acquisition, March 31, 2016, effective January 1, 2015 - The related assets, liabilities and results of operations of Hardin Street Transportation LLC (“HST”), Woodhaven Cavern LLC (“WHC”) and MPLX Terminals LLC (“MPLXT”) 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

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Part I—Financial Information

Item 1. Financial Statements

MPLX LP

Consolidated Statements of Income (Unaudited)



	Three Months Ended March 31,
(In millions, except per unit data)	2018		2017
Revenues and other income:
Service revenue	$	382	$	260
Service revenue - related parties	471		255
Service revenue - product related	44		—
Rental income	79		69
Rental income - related parties	145		67
Product sales	207		203
Product sales - related parties	4		2
Income from equity method investments	61		5
Other income	4		3
Other income - related parties	23		22
Total revenues and other income	1,420		886
Costs and expenses:
Cost of revenues (excludes items below)	206		113
Purchased product costs	187		131
Rental cost of sales	29		12
Rental cost of sales - related parties	1		—
Purchases - related parties	177		107
Depreciation and amortization	176		187
General and administrative expenses	69		58
Other taxes	18		13
Total costs and expenses	863		621
Income from operations	557		265
Related party interest and other financial costs	1		—
Interest expense (net of amounts capitalized of $9 million, $7 million, respectively)	112		66
Other financial costs	17		12
Income before income taxes	427		187
Provision for income taxes	4		—
Net income	423		187
Less: Net income attributable to noncontrolling interests	2		1
Less: Net income attributable to Predecessor	—		36
Net income attributable to MPLX LP	421		150
Less: Preferred unit distributions	16		16
Less: General partner’s GP interest in net income attributable to MPLX LP	—		62
Limited partners’ interest in net income attributable to MPLX LP	$	405	$	72
Per Unit Data (See Note 7)
Net income attributable to MPLX LP per limited partner unit:
Common - basic	$	0.61	$	0.20
Common - diluted	$	0.61	$	0.19
Weighted average limited partner units outstanding:
Common - basic	661		362
Common - diluted	661		367
Cash distributions declared per limited partner common unit	$	0.6175	$	0.5400

The accompanying notes are an integral part of these consolidated financial statements.

MPLX LP

Consolidated Statements of Comprehensive Income (Unaudited)



	Three Months Ended March 31,
(In millions)	2018			2017
Net income	$	423		$	187
Other comprehensive income (loss), net of tax:
Remeasurements of pension and other postretirement benefits related to equity method investments, net of tax	(2		)	—
Comprehensive income	421			187
Less comprehensive income (loss) attributable to:
Noncontrolling interests	2			1
Income attributable to Predecessor	—			36
Comprehensive income attributable to MPLX LP	$	419		$	150

The accompanying notes are an integral part of these consolidated financial statements.

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MPLX LP

Consolidated Balance Sheets (Unaudited)



(In millions)	March 31, 2018			December 31, 2017
Assets
Current assets:
Cash and cash equivalents	$	2		$	5
Receivables, net	300			292
Receivables - related parties	330			160
Inventories	64			65
Other current assets	33			37
Total current assets	729			559
Equity method investments	4,033			4,010
Property, plant and equipment, net	13,291			12,187
Intangibles, net	444			453
Goodwill	2,460			2,245
Long-term receivables - related parties	21			20
Other noncurrent assets	28			26
Total assets	$	21,006		$	19,500
Liabilities
Current liabilities:
Accounts payable	$	143		$	151
Payables - related parties	146			516
Deferred revenue - related parties	43			43
Accrued interest payable	99			88
Other current liabilities	445			506
Total current liabilities	876			1,304
Long-term deferred revenue	49			42
Long-term deferred revenue - related parties	49			43
Long-term debt	11,861			6,945
Deferred income taxes	10			5
Deferred credits and other liabilities	183			188
Total liabilities	13,028			8,527
Commitments and contingencies (see Note 20)
Redeemable preferred units	1,000			1,000
Equity
Common unitholders - public (289 million and 289 million units issued and outstanding)	8,385			8,379
Common unitholder - MPC (505 million and 118 million units issued and outstanding)	(1,537		)	2,099
General partner - MPC (0 and 8 million units issued and outstanding)	—			(637		)
Accumulated other comprehensive loss	(16		)	(14		)
Total MPLX LP partners’ capital	6,832			9,827
Noncontrolling interests	146			146
Total equity	6,978			9,973
Total liabilities, preferred units and equity	$	21,006		$	19,500

The accompanying notes are an integral part of these consolidated financial statements.

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MPLX LP

Consolidated Statements of Cash Flows (Unaudited)



	Three Months Ended March 31,
(In millions)	2018				2017
(Decrease) increase in cash, cash equivalents and restricted cash
Operating activities:
Net income	$	423			$	187
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred financing costs	16				12
Depreciation and amortization	176				187
Deferred income taxes	4				—
Asset retirement expenditures	(1		)		(1		)
Gain on disposal of assets	—				(1		)
Income from equity method investments	(61		)		(5		)
Distributions from unconsolidated affiliates	68				33
Changes in:
Current receivables	(8		)		44
Inventories	2				—
Fair value of derivatives	(9		)		(18		)
Current accounts payable and accrued liabilities	(44		)		(59		)
Receivables from / liabilities to related parties	(127		)		(18		)
Prepaid other current assets from related parties	1			3	—
Deferred revenue	7			3	7
All other, net	3				9
Net cash provided by operating activities	450				377
Investing activities:
Additions to property, plant and equipment	(455		)		(280		)
Acquisitions, net of cash acquired	—				(220		)
Disposal of assets	2				(1		)
Investments - net related party loans	—				80
Investments in unconsolidated affiliates	(38		)		(554		)
Distributions from unconsolidated affiliates - return of capital	—				20
All other, net	1				—
Net cash used in investing activities	(490		)		(955		)
Financing activities:
Long-term debt - borrowings	9,610				2,241
- repayments	(4,655		)		(1		)
Related party debt - borrowings	452				12
- repayments	(838		)		(12		)
Debt issuance costs	(53		)		(21		)
Net proceeds from equity offerings	—				151
Distributions of cash received from joint-interest acquisition entities to MPC	(11		)		—
Distributions to MPC for acquisition	(4,100		)		(1,511		)
Distributions to MPC from Predecessor	—				(113		)
Distributions to noncontrolling interests	(3		)		(2		)
Distributions to preferred unitholders	(16		)		(16		)
Distributions to unitholders and general partner	(347		)		(242		)
Contributions from noncontrolling interests	1				126
All other, net	(3		)		(5		)
Net cash provided by financing activities	37				607
Net (decrease) increase in cash, cash equivalents and restricted cash	(3		)		29
Cash, cash equivalents and restricted cash at beginning of period	9				239
Cash, cash equivalents and restricted cash at end of period	$	6			$	268

The accompanying notes are an integral part of these consolidated financial statements.

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MPLX LP

Consolidated Statements of Equity (Unaudited)



	Partnership
(In millions)	Common Unit-holders Public			Class B Unit-holders Public		Common Unit-holder MPC			General Partner MPC			Accumulated Other Comprehensive Loss			Non-controlling Interests			Equity of Predecessor			Total
Balance at December 31, 2016	$	8,086		$	133	$	1,069		$	1,013		$	—		$	18		$	791		$	11,110
Distributions to MPC from Predecessor	—			—		—			—			—			—			(113		)	(113		)
Issuance of units under ATM Program	148			—		—			3			—			—			—			151
Net income	55			—		17			62			—			1			36			171
Contribution from MPC	—			—		—			—			—			—			12			12
Allocation of MPC's net investment at acquisition	—			—		923			(197		)	—			—			(726		)	—
Distributions to MPC for acquisition	—			—		(430		)	(1,081		)	—			—			—			(1,511		)
Distributions to unitholders and general partner	(140		)	—		(45		)	(57		)	—			—			—			(242		)
Distributions to noncontrolling interests	—			—		—			—			—			(2		)	—			(2		)
Contributions from noncontrolling interests	—			—		—			—			—			126			—			126
Other	(2		)	—		—			—			—			—			—			(2		)
Balance at March 31, 2017	$	8,147		$	133	$	1,534		$	(257	)	$	—		$	143		$	—		$	9,700

Balance at December 31, 2017	$	8,379		$	—	$	2,099		$	(637	)	$	(14	)	$	146		$	—		$	9,973
Net income	180			—		225			—			—			2			—			407
Contribution from MPC	—			—		—			—						—			1,046			1,046
Allocation of MPC's net investment at acquisition	—			—		5,172			(4,126		)	—			—			(1,046		)	—
Distribution to MPC for acquisitions	—			—		(936		)	(3,164		)	—			—			—			(4,100		)
Distributions to unitholders and general partner	(176		)	—		(171		)	—			—			—			—			(347		)
Distributions to noncontrolling interests	—			—		—			—			—			(3		)	—			(3		)
Contributions from noncontrolling interests	—			—		—			—			—			1			—			1
Conversion of GP economic interests	—			—		(7,926		)	7,926			—			—			—			—
Other	2			—		—			1			(2		)	—			—			1
Balance at March 31, 2018	$	8,385		$	—	$	(1,537	)	$	—		$	(16	)	$	146		$	—		$	6,978

The accompanying notes are an integral part of these consolidated financial statements.

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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. References in this report to “MPLX LP,” “the Partnership,” “we,” “ours,” “us,” or like terms refer to MPLX LP and its subsidiaries (collectively, the “Partnership”). References to “MPC” refer collectively to Marathon Petroleum Corporation as our sponsor and its subsidiaries, other than the Partnership. The Partnership is engaged in the gathering, processing and transportation of natural gas; the gathering, transportation, fractionation, storage and marketing of NGLs; the transportation, storage and distribution of crude oil and refined petroleum products; as well as refining logistics and fuels distributions services. The Partnership’s principal executive office is located in Findlay, Ohio.

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”) from MPC. Effective September 1, 2017, the Partnership acquired certain ownership percentages in joint venture entities from MPC including: 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 41 percent interest in LOOP LLC (“LOOP”); a 59 percent interest in LOCAP LLC (“LOCAP”); and a 25 percent interest in Explorer Pipeline Company (“Explorer”). Effective February 1, 2018, the Partnership acquired MPC’s refining logistics assets and fuels distribution services. These acquisitions are described further in Note 4.

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 10 for additional information regarding operations.

Basis of Presentation – 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. Certain amounts in prior years have been reclassified to conform to current year presentation.

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, 2017. The results of operations for the three months ended March 31, 2018 are not necessarily indicative of the results to be expected for the full year.

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.

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 9. Prior to 2018, when distributions related to the IDRs were made, earnings equal to the amount of those distributions were first allocated to the general partner before the remaining earnings were allocated to the limited partner unitholders based on their respective ownership percentages. Subsequent to the conversion of the general partner to a non-economic interest as described in Note 8, no earnings will be allocated to the general partner. Distributions, although earned, are not accrued until declared. The allocation of net income attributable to MPLX LP for purposes of calculating net income per limited partner unit is described in Note 7.

2. Summary of Principal Accounting Policies

Revenue Recognition – As a result of the adoption of the new revenue recognition standard, as described further in Note 3, the Partnership has updated its policies as it relates to revenue recognition. Revenue is measured based on consideration specified in a contract with a customer. The Partnership recognizes revenue when it satisfies a performance obligation by transferring control over a product or providing services to a customer.

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The Partnership enters into a variety of contract types in order to generate “Product sales” and “Service revenue.” The Partnership provides services under the following different types of arrangements:

•

Fee-based arrangements – Under fee-based arrangements, the Partnership receives a fee or fees for one or more of the following services: gathering, processing and transportation of natural gas; gathering, transportation, fractionation, exchange and storage of NGLs; and transportation, storage and distribution of crude oil, refined products and other hydrocarbon-based products. The revenue the Partnership earns from these arrangements is generally directly related to the volume of natural gas, NGL refined products or crude oil that is handled by or flows through the Partnership’s systems and facilities and is not normally directly dependent on commodity prices. In certain cases, the Partnership’s arrangements provide for minimum annual payments or fixed demand charges.

Fee-based arrangements are reported as “Service revenue” on the Consolidated Statements of Income. Revenue is recognized over time as services are performed in a series. In certain instances when specifically stated in the contract terms, the Partnership purchases product after fee-based services have been provided. Revenue from the sale of products purchased after services are provided is reported as “Product sales” on the Consolidated Statements of Income and recognized on a gross basis as the Partnership takes control of the product and is the principal in the transaction.

•

Percent-of-proceeds arrangements – Under percent-of-proceeds arrangements, the Partnership: gathers and processes natural gas on behalf of producers; sells the resulting residue gas, condensate and NGLs at market prices; and remits to producers an agreed-upon percentage of the proceeds. In other cases, instead of remitting cash payments to the producer, the Partnership delivers an agreed-upon percentage of the residue gas and NGLs to the producer (take-in-kind arrangements) and sells the volumes the Partnership retains to third parties. Revenue is recognized on a net basis when the Partnership acts as an agent and does not have control of the gross amount of gas and/or NGLs prior to it being sold. Percent-of-proceeds revenue is reported as “Service revenue - product related” on the Consolidated Statements of Income.

•

Keep-whole arrangements – Under keep-whole arrangements, the Partnership gathers natural gas from the producer, processes the natural gas and sells the resulting condensate and NGLs to third parties at market prices. Because the extraction of the condensate and NGLs from the natural gas during processing reduces the Btu content of the natural gas, the Partnership must either purchase natural gas at market prices for return to producers or make cash payment to the producers equal to the value of the energy content of this natural gas. Certain keep-whole arrangements also have provisions that require the Partnership to share a percentage of the keep-whole profits with the producers based on the oil to gas ratio or the NGL to gas ratio. “Service revenue - product related” is recorded based on the value of the NGLs received on the date the services are performed. Natural gas purchased to return to the producer and shared NGL profits are recorded as a reduction of “Service revenue - product related” in the Consolidated Statements of Income on the date the services are performed. Sales of NGLs under these arrangements are reported as “Product sales” on the Consolidated Statements of Income and are reported on a gross basis as the Partnership is the principal in the arrangement and controls the product prior to sale. The sale of the NGLs may occur shortly after services are performed at the tailgate of the plant, or after a period of time as determined by the Partnership.

•

Purchase arrangements – Under purchase arrangements, the Partnership purchases natural gas at either the wellhead or the tailgate of a plant. The Partnership then gathers and delivers the natural gas to pipelines where the Partnership may resell the natural gas. Wellhead purchase arrangements represent an arrangement with a supplier and are recorded in “Purchased product costs”. Often, the Partnership earns fees for services performed prior to taking control of the product in these arrangements and “Service revenue” is recorded for these fees. Revenue generated from the sale of product obtained in tailgate purchase arrangements are reported as “Product sales” on the Consolidated Statements of Income and are recognized on a gross basis as the Partnership purchases and takes control of the product prior to sale and is the principal in the transaction.

In many cases, the Partnership provides services under contracts that contain a combination of more than one of the arrangements described above. When fees are charged (in addition to product received) under percent-of-proceeds arrangements, keep-whole arrangements or purchase arrangements, the Partnership records such fees as “Service revenue” on the Consolidated Statements of Income. The terms of the Partnership’s contracts vary based on gas quality conditions, the competitive environment when the contracts are signed and customer requirements. Performance obligations are determined based on the specific terms of the arrangements, economics of the geographical regions and based on the services offered and whether they are deemed distinct. The Partnership allocates the consideration earned between the performance obligations based on the stand-alone selling price when multiple performance obligations are identified.

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The Partnership’s service arrangements will generally be recognized over time when the performance obligation is satisfied as services are provided in a series. The Partnership has elected to use the output measure of progress to recognize revenue based on the units delivered, processed or transported. The transaction price has fixed components related to minimum volume commitments and variable components which are primarily dependent on volumes. Variable consideration will generally not be estimated at contract inception as the transaction price is specifically allocable to the services provided each period end. In instances in which tiered pricing structures do not reflect our efforts to perform, the Partnership will estimate variable consideration at contract inception. “Product sales” will be recognized at a point in time when control of the product transfers to the customer.

Minimum volume commitments may create contract liabilities or deferred credits if current period payments can be used for future services. Breakage is estimated and recognized into service revenue in instances where it is probable the customer will not use the credit in future periods. No breakage was recognized in the current period.

Amounts billed to customers for shipping and handling, electricity, and other costs to perform services are included in “Service revenue” on the Consolidated Statements of Income. Shipping and handling costs associated with product sales are included in “Purchased product costs” on the Consolidated Statements of Income. Facility expenses, costs of revenues and depreciation represent those expenses related to operating our various facilities and are necessary to provide both “Product sales” and “Service revenue.”

Customers usually pay monthly based on the products purchased or services performed that month. Taxes collected from customers and remitted to the appropriate taxing authority are excluded from revenue.

Based on the terms of certain natural gas gathering, transportation and processing agreements, the Partnership is considered to be the lessor under several implicit operating lease arrangements in accordance with GAAP. Revenue and costs related to the portion of the revenue earned under these contracts considered to be implicit leases are recorded as “Rental income” and “Rental cost of sales,” respectively, on the Consolidated Statements of Income. The allocation method used to allocate income between lease and non-lease components was updated as a result of ASC 606. Similarly, the Partnership is considered to be the lessor under implicit operating lease arrangements with MPC in accordance with GAAP. Revenue related to these agreements are recorded as “Rental income - related parties” on the Consolidated Statements of Income. “Rental income” and “Rental income - related parties” is not deemed to be revenue from contracts with customers.

The Partnership routinely makes accruals based on estimates for both revenue and expenses due to the timing of compiling billing information, receiving certain third-party information and reconciling the Partnership’s records with those of third parties. The delayed information from third parties includes among other things; actual volumes purchased, transported or sold; adjustments to inventory and invoices for purchases; actual natural gas and NGL deliveries and other operating expenses. The Partnership makes accruals to reflect estimates for these items based on its internal records and information from third parties. Estimated accruals are adjusted when actual information is received from third parties and the Partnership’s internal records have been reconciled.

3. Accounting Standards

Recently Adopted

ASU 2014-09, Revenue - Revenue from Contracts with Customers. In May 2014, the FASB issued ASU 2014-09 which created ASC 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 involves 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 are required to provide adequate information to understand the nature, amount, timing and uncertainty of reported revenues and revenues expected to be recognized. The Partnership adopted the standard as of January 1, 2018 using the modified retrospective method by recognizing the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. See Note 16 for further details.

We also adopted the following standards during the first quarter of 2018, none of which had a material impact to our financial statements or financial statement disclosures:

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ASU		Effective Date
2017-09	Stock Compensation - Scope of Modification Accounting	January 1, 2018
2017-05	Gains and Losses from the Derecognition of Nonfinancial Assets - Clarifying the Scope of Asset Derecognition Guidance	January 1, 2018
2017-01	Business Combinations - Clarifying the Definition of a Business	January 1, 2018
2016-18	Statement of Cash Flows - Restricted Cash	January 1, 2018
2016-15	Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments	January 1, 2018
2016-01	Financial Instruments - Recognition and Measurement of Financial Assets and Liabilities	January 1, 2018

Not Yet Adopted

ASU 2017-12, Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities. 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 currently evaluating the impact of this guidance, including transition elections and required disclosures, on our financial statements and the timing of adoption. However, since we have not historically designated our commodity derivatives as hedges, we do not expect the adoption of this accounting standards update to have a material impact on our consolidated financial statements.

ASU 2017-04, Intangibles - Goodwill and Other - Simplifying the Test for Goodwill Impairment. 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 any 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 currently evaluating the impact of this guidance on our financial statements and the timing of adoption.

ASU 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments. 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 be 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 our consolidated financial statements.

ASU 2016-02, Leases. 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 years, with early adoption permitted. The Partnership continues to evaluate the impact of this standard on our 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 of implementing changes to existing processes and controls. We are implementing a third-party supported lease accounting information system to account for our lease population in accordance with this new standard and establishing internal controls over the new system. We believe the adoption of the standard will have a material impact on our consolidated financial statements as virtually all leases will be recognized as a right of use asset and lease obligation.

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4. Acquisitions

Refining Logistics and Fuels Distribution Acquisition

On February 1, 2018, MPC and MPLX LP closed on an agreement for the dropdown of refining logistics assets and fuels distribution services to MPLX LP. MPC contributed these assets and services in exchange for $4.1 billion in cash and a fixed number of MPLX LP common units and general partner units of 111,611,111 and 2,277,778, respectively. The fair value of the common and general partner units issued as of the acquisition date was $4.3 billion based on the closing common unit price as of February 1, 2018, as recorded on the Consolidated Statements of Equity, for a total purchase price of $8.4 billion. The equity issued consisted of: (i) 85,610,278 common units to MPLX GP LLC (“MPLX GP”), (ii) 18,176,666 common units to MPLX Logistics Holdings LLC (“MPLX Logistics”) and (iii) 7,824,167 common units to MPLX Holdings Inc. (“MPLX Holdings”). The Partnership also issued 2,277,778 general partner units to MPLX GP in order to maintain its two percent general partner interest (“GP Interest”) in the Partnership. MPC agreed to waive approximately one-third of the first quarter 2018 distributions on the common units issued in connection with this transaction. As a result of this waiver, MPC will not receive $23.7 million of the distributions that would have otherwise accrued on such common units with respect to the first quarter 2018. Immediately following this transaction, the GP Interest was converted into a non-economic general partner interest as discussed in Note 8.

The Partnership recorded this transaction on a historical basis as required for transactions between entities under common control. No effect was given to the prior periods as these entities were not considered businesses prior to the February 1, 2018 dropdown. In connection with the dropdown, approximately $830 million of net property, plant and equipment was recorded in addition to $85 million and $130 million of goodwill allocated to Refining Logistics and Fuels Distribution respectively. Both the refining logistics assets and the fuels distribution services are accounted for within the L&S segment.

The refining logistics assets are owned by MPLX Refining Logistics LLC (“Refining Logistics”) and include 619 tanks with approximately 56 million barrels of storage capacity (crude, finished products and intermediates), 32 rail and truck racks, 18 docks and gasoline blenders. These assets generate revenue through storage services agreements with MPC. Refining Logistics is the sole and exclusive provider of certain services to MPC related to the receipt, storage, throughput, custody and delivery of petroleum products in and through certain storage and logistical facilities and assets associated with MPC’s refineries.

MPLX Fuels Distribution LLC (“Fuels Distribution”) (which is a wholly owned subsidiary of MPLXT) generates revenue through a fuels distribution services agreement with MPC. Fuels Distribution is structured to provide a broad range of scheduling and marketing services as MPC’s sole and exclusive agent.

The amounts of revenue and income from operations associated with these investments included in the Consolidated Statements of Income, since the February 1, 2018 acquisition date, were as follows:



(In millions)	Two Months Ended March 31, 2018
Revenues and other income	$	265
Income from operations	181

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, MPLX Logistics, 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; all of the membership interests of MPL Louisiana Holdings LLC, which holds a 41 percent interest in LOOP; a 59 percent interest in LOCAP; and a 25 percent interest in 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)

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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 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.

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 time period prior to the acquisition and recorded a liability to MPC and a corresponding decrease to the general partner’s equity for $32 million.

The Partnership accounts for the interests acquired in the Joint-Interest Acquisition in arrears using the most recently available information. The amount of income (loss) associated with these investments included in the Consolidated Statements of Income under the caption “Income from equity method investments” for the three months ended March 31, 2018 totaled $37 million. The Partnership’s investment balance at March 31, 2018 related to the acquired interests is approximately $635 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.

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, 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 eight butane and propane storage caverns located in Michigan with approximately 1.8

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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.

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.

MarEn Bakken

On February 15, 2017, the Partnership closed on a joint venture, MarEn Bakken Company LLC (“MarEn Bakken”), with Enbridge Energy Partners LP 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, LP. The Partnership contributed $500 million of the $2.0 billion purchase price paid by MarEn Bakken to acquire a 37 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 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 amount of income (loss) associated with these investments included in the Consolidated Statements of Income under the caption “Income from equity method investments” for the three months ended March 31, 2018 totaled $7 million. The Partnership’s investment balance at March 31, 2018 is approximately $529 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. This waiver is no longer applicable as a result of the conversion of the GP Interest to a non-economic general partner interest as discussed in Note 8.

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5. Investments and Noncontrolling Interests

The following table presents the Partnership’s equity method investments at the dates indicated:



	Ownership as of	Carrying value at
	March 31,	March 31,		December 31,
(In millions)	2018	2018		2017
Centrahoma Processing LLC	40%	$	121	$	121
Explorer	25%	97		89
Illinois Extension	35%	288		284
LOCAP	59%	26		24
LOOP	41%	225		225
MarEn Bakken	25%	529		520
MarkWest EMG Jefferson Dry Gas Gathering Company, L.L.C.	67%	178		164
MarkWest Utica EMG, L.L.C.	56%	2,116		2,139
Ohio Condensate Company, L.L.C.	60%	11		11
Panola Pipeline Company, LLC	15%	23		24
Sherwood Midstream LLC	50%	260		236
Sherwood Midstream Holdings LLC	62%	151		165
Other		8		8
Total		$	4,033	$	4,010

Summarized financial information for the Partnership’s equity method investments for the three months ended March 31, 2018 and 2017 is as follows:



	Three Months Ended March 31, 2018
(In millions)	MarkWest Utica EMG, L.L.C.		Other VIEs		Non-VIEs		Total
Revenues and other income	$	63	$	43	$	297	$	403
Costs and expenses	44		18		155		217
Income from operations	19		25		142		186
Net income	19		25		129		173
Income from equity method investments⁽¹⁾	1		14		46		61



	Three Months Ended March 31, 2017
(In millions)	MarkWest Utica EMG, L.L.C.		Other VIEs			Non-VIEs		Total
Revenues and other income	$	50	$	8		$	45	$	103
Costs and expenses	25		8			33		66
Income from operations	25		—			12		37
Net income	25		—			8		33
Income (loss) from equity method investments⁽¹⁾	4		(1		)	2		5


(1)	“Income (loss) from equity method investments” includes the impact of any basis differential amortization or accretion.

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Summarized balance sheet information for the Partnership’s equity method investments as of March 31, 2018 and December 31, 2017 is as follows:



	March 31, 2018
(In millions)	MarkWest Utica EMG, L.L.C.⁽¹⁾		Other VIEs		Non-VIEs		Total
Current assets	$	71	$	71	$	363	$	505
Noncurrent assets	2,035		1,002		4,696		7,733
Current liabilities	24		87		183		294
Noncurrent liabilities	4		11		870		885



	December 31, 2017
(In millions)	MarkWest Utica EMG, L.L.C.⁽¹⁾		Other VIEs		Non-VIEs		Total
Current assets	$	65	$	46	$	399	$	510
Noncurrent assets	2,077		930		4,624		7,631
Current liabilities	39		44		220		303
Noncurrent liabilities	3		11		904		918


(1)	MarkWest Utica EMG, L.L.C.’s (“MarkWest Utica EMG”) noncurrent assets include its investment in its subsidiary, Ohio Gathering Company, L.L.C. (“Ohio Gathering”), which does not appear elsewhere in this table. The investment was $784 million and $790 million as of March 31, 2018 and December 31, 2017, respectively.

As of March 31, 2018 and December 31, 2017, the carrying value of the Partnership’s equity method investments exceeded the underlying net assets of its investees by $1.0 billion. This basis difference is being amortized or accreted into net income over the remaining estimated useful lives of the underlying net assets, except for $459 million of excess related to goodwill.

MarkWest Utica EMG

Effective January 1, 2012, MarkWest Utica Operating Company, L.L.C. (“Utica Operating”), a wholly-owned and consolidated subsidiary of MarkWest, and EMG Utica, LLC (“EMG Utica” and together with Utica Operating, the “Members”) executed agreements to form a joint venture, MarkWest Utica EMG, to develop significant natural gas gathering, processing and NGL fractionation, transportation and marketing infrastructure in eastern Ohio.

MarkWest Utica EMG is deemed to be a VIE. Utica Operating is not deemed to be the primary beneficiary, due to EMG Utica’s voting rights on significant matters. The Partnership’s maximum exposure to loss as a result of its involvement with MarkWest Utica EMG includes its equity investment, any additional capital contribution commitments and any operating expenses incurred by the subsidiary operator in excess of its compensation received for the performance of the operating services. The Partnership did not provide any financial support to MarkWest Utica EMG that it was not contractually obligated to provide during the three months ended March 31, 2018.

Ohio Gathering

Ohio Gathering is a subsidiary of MarkWest Utica EMG and is engaged in providing natural gas gathering services in the Utica Shale in eastern Ohio. Ohio Gathering is a joint venture between MarkWest Utica EMG and Summit Midstream Partners, LLC. As of March 31, 2018, the Partnership has an approximate 34 percent indirect ownership interest in Ohio Gathering. As Ohio Gathering is a subsidiary of MarkWest Utica EMG, which is accounted for as an equity method investment, the Partnership reports its portion of Ohio Gathering’s net assets as a component of its investment in MarkWest Utica EMG.

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Sherwood Midstream

Effective January 1, 2017, MarkWest Liberty Midstream & Resources, L.L.C. (“MarkWest Liberty Midstream”), a wholly-owned and consolidated subsidiary of MarkWest, and Antero Midstream Partners, LP (“Antero Midstream”) formed a joint venture, Sherwood Midstream LLC (“Sherwood Midstream”), to support Antero Resources Corporation’s development in the Marcellus Shale. Pursuant to the terms of the related limited liability company agreement (the “LLC Agreement”), MarkWest Liberty Midstream contributed assets then under construction with a fair value of approximately $134 million and cash of approximately $20 million. Antero Midstream made an initial capital contribution of approximately $154 million.

Also effective January 1, 2017, MarkWest Liberty Midstream converted all of its ownership interests in MarkWest Ohio Fractionation Company, L.L.C. (“Ohio Fractionation”), a previously wholly-owned subsidiary, to Class A Interests and amended its LLC Agreement to create Class B-3 Interests, which were sold to Sherwood Midstream for $126 million in cash. The Class B-3 Interests provide Sherwood Midstream with the right to fractionation revenue and the obligation to pay expenses related to 20 mbpd of capacity in the Hopedale 3 fractionator. Sherwood Midstream accounts for its investment in Ohio Fractionation, which is a VIE, as an equity method investment as Sherwood Midstream does not control Ohio Fractionation. MarkWest Liberty Midstream has been deemed to be the primary beneficiary of Ohio Fractionation because it has control over the decisions that could significantly impact its financial performance, and as a result, consolidates Ohio Fractionation. The creditors of Ohio Fractionation do not have recourse to MPLX LP’s general credit through guarantees or other financial arrangements. The assets of Ohio Fractionation are the property of Ohio Fractionation and cannot be used to satisfy the obligations of MPLX LP. Sherwood Midstream’s interests are reflected in “Net income attributable to noncontrolling interests” in the Consolidated Statements of Income and “Noncontrolling interests” in the Consolidated Balance Sheets.

Sherwood Midstream is deemed to be a VIE. MarkWest Liberty Midstream is not deemed to be the primary beneficiary, due to Antero Midstream’s voting rights on significant matters. The Partnership’s maximum exposure to loss as a result of its involvement with Sherwood Midstream includes its equity investment, any additional capital contribution commitments and any operating expenses incurred by the subsidiary operator in excess of its compensation received for the performance of the operating services. The Partnership did not provide any financial support to Sherwood Midstream that it was not contractually obligated to provide during the three months ended March 31, 2018.

Sherwood Midstream Holdings

Effective January 1, 2017, MarkWest Liberty Midstream and Sherwood Midstream formed a joint venture, Sherwood Midstream Holdings LLC (“Sherwood Midstream Holdings”), for the purpose of owning, operating and maintaining all of the shared assets that support the operations of the gas plants and other assets owned by Sherwood Midstream and the gas plants and deethanization facilities owned by MarkWest Liberty Midstream. MarkWest Liberty Midstream initially contributed certain real property, equipment and facilities with a fair value of approximately $209 million to Sherwood Midstream Holdings in exchange for a 79 percent initial ownership interest. Sherwood Midstream contributed cash of approximately $44 million to Sherwood Midstream Holdings in exchange for a 21 percent ownership interest. During the second quarter ended June 30, 2017, true-ups to the initial contributions were finalized. MarkWest Liberty Midstream contributed certain additional real property, equipment and facilities with a fair value of approximately $10 million to Sherwood Midstream Holdings and Sherwood Midstream contributed cash of approximately $4 million to Sherwood Midstream Holdings. The contribution was determined to be an in-substance sale of real estate. During the three months ended March 31, 2018, MarkWest Liberty Midstream sold to Sherwood Midstream six percent of their equity ownership in Sherwood Midstream Holdings for $15 million.

The Partnership accounts for Sherwood Midstream Holdings, which is a VIE, as an equity method investment as Sherwood Midstream is considered to be the general partner and controls all decisions. The Partnership’s maximum exposure to loss as a result of its involvement with Sherwood Midstream Holdings includes its equity investment, any additional capital contribution commitments and any operating expenses incurred by the subsidiary operator in excess of its compensation received for the performance of the operating services. The Partnership did not provide any financial support to Sherwood Midstream Holdings that it was not contractually obligated to provide during the three months ended March 31, 2018.

Sherwood Midstream has been deemed the primary beneficiary of Sherwood Midstream Holdings due to its controlling financial interest through its authority to manage the joint venture. As a result, Sherwood Midstream consolidates Sherwood Midstream Holdings. Therefore, the Partnership also reports its portion of Sherwood Midstream Holdings’ net assets as a component of its investment in Sherwood Midstream. As of March 31, 2018, the Partnership has an 18.9 percent indirect ownership interest in Sherwood Midstream Holdings through Sherwood Midstream.

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6. Related Party Agreements and Transactions

The Partnership’s material related parties include:


•	MPC, which refines, markets and transports crude oil and petroleum products, primarily in the Midwest, Gulf Coast, East Coast and Southeast regions of the United States.


•	MarkWest Utica EMG, in which MPLX LP has a 56 percent interest as of March 31, 2018. MarkWest Utica EMG is engaged in natural gas processing and NGL fractionation, transportation and marketing in Ohio.


•	Ohio Gathering, in which MPLX LP has a 34 percent indirect interest as of March 31, 2018. Ohio Gathering is a subsidiary of MarkWest Utica EMG providing natural gas gathering service in the Utica Shale region of eastern Ohio.


•	Sherwood Midstream, in which MPLX LP has a 50 percent interest as of March 31, 2018. Sherwood Midstream supports the development of Antero Resources Corporation’s Marcellus Shale acreage in the rich-gas corridor of West Virginia.


•	Sherwood Midstream Holdings, in which MPLX LP has an 81 percent total direct and indirect interest as of March 31, 2018. Sherwood Midstream Holdings owns certain infrastructure at the Sherwood Complex that is shared by and supports the operation of both the Sherwood Midstream and MarkWest gas processing plants and deethanization facilities.


•	MarkWest EMG Jefferson Dry Gas Gathering Company, LLC (“Jefferson Dry Gas”), in which MPLX LP has a 67 percent interest as of March 31, 2018. Jefferson Dry Gas provides natural dry gas gathering and related services in the Utica Shale region of Ohio.

Related Party Agreements

The Partnership has various long-term, fee-based commercial agreements with MPC. Under these agreements, the Partnership provides transportation, terminal, fuels distribution, marketing and storage services to MPC. MPC has committed to provide the Partnership with minimum quarterly throughput volumes on crude oil and refined products systems and minimum storage volumes of crude oil, refined products and butane.

In addition, the Partnership is party to a loan agreement with MPC Investment. Under the terms of the agreement, MPC Investment will make a loan or loans to the Partnership on a revolving basis as requested by the Partnership and as agreed to by MPC Investment, in an amount or amounts that do not result in the aggregate principal amount of all loans outstanding exceeding $500 million at any one time. The entire unpaid principal amount of the loan, together with all accrued and unpaid interest and other amounts (if any), shall become due and payable on December 4, 2020. MPC Investment may demand payment of all or any portion of the outstanding principal amount of the loan, together with all accrued and unpaid interest and other amounts (if any), at any time prior to December 4, 2020. Borrowings under the loan will bear interest at LIBOR plus 1.50 percent. During the three months ended March 31, 2018, the Partnership borrowed $452 million and repaid $838 million. At March 31, 2018 there was no outstanding balance for this loan on the Consolidated Balance Sheets. Borrowings were at an average interest rate of 3.073 percent, per annum, for the three months ended March 31, 2018. During the year ended December 31, 2017, the Partnership borrowed $2.4 billion and repaid $2.0 billion, resulting in $386 million outstanding balance at December 31, 2017. Borrowings were at an average interest rate of 2.777 percent, per annum, for the year ended December 31, 2017. For additional information regarding the Partnership’s commercial and other agreements with MPC, see Item 1. Business in the Annual Report on Form 10-K for the year ended December 31, 2017.

Refining Logistics and Fuels Distribution Agreements

As discussed in Note 4, the Partnership acquired Refining Logistics and Fuels Distribution on February 1, 2018. Refining Logistics and Fuels Distribution, along with their subsidiaries, have various storage services agreements and a fuels distribution services agreement with MPC which were assumed by the Partnership with the closing of the transaction. The commercial agreements with MPC include:

Fuels distribution services agreement – Fuels Distribution is a party to a services agreement with MPC in connection with the dropdown of the fuels distribution services. Under this agreement, Fuels Distribution provides services related to the scheduling and marketing of certain petroleum products to MPC. Fuels Distribution does not provide the same services to third parties without the prior written consent of MPC, and Fuels Distribution is MPC’s sole provider of these services. This agreement has an initial term of 10 years, subject to a five-year renewal period under terms to be renegotiated at that time.

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Under the Fuels Distribution Services Agreement, MPC pays Fuels Distribution a tiered monthly fee based on the volume of MPC’s products sold by Fuels Distribution each month, subject to a maximum annual volume. Fuels Distribution has agreed to use commercially reasonable efforts to sell not less than a minimum quarterly volume of MPC’s products during each calendar quarter. If Fuels Distribution sells less than the minimum quarterly volume of MPC’s products during any calendar quarter despite its commercially reasonable efforts, MPC will pay Fuels Distribution a deficiency payment equal to the volume deficiency multiplied by the applicable tiered fee. The dollar amount of actual sales volume of MPC’s products that exceeds the minimum quarterly volume (an “Excess Sale”) for a particular quarter will be applied as a credit, on a first-in-first-out basis, against any future deficiency payment owed by MPC to Fuels Distribution during the four calendar quarters immediately following the calendar quarter in which the Excess Sale occurs.

Storage services agreements – Refining Logistics is party to multiple storage services agreements with each of MPC’s refineries in connection with the dropdown of the refining logistics assets. Under these agreements, the subsidiaries of Refining Logistics provide certain services exclusively to MPC related to the receipt, storage, throughput, custody and delivery of petroleum products in and through certain storage and logistical facilities and assets associated with MPC’s refineries. These agreements have initial terms of 10 years, subject to five-year renewal periods under terms to be renegotiated at that time.

MPC pays Refining Logistics monthly fees for such storage and logistical services calculated as set forth in the agreements. The storage and logistical facilities subject to the agreements are to be allocated exclusively to MPC for the term of the agreement.

Co-location services agreements – Refining Logistics is party to multiple co-location services agreements with each of MPC’s refineries in connection with the dropdown of the refining logistics assets. Under these agreements, MPC provides management, operational and other services to the subsidiaries of Refining Logistics. Refining Logistics pays MPC monthly fixed fees and direct reimbursements for such services calculated as set forth in the agreements. These agreements have initial terms of 50 years.

Related Party Transactions

Related party sales to MPC consisted of crude oil and refined products pipeline transportation services based on regulated tariff rates; storage, terminal, throughput and fuels distribution services based on contracted rates; and marine transportation services. Related party sales to MPC also consist of revenue related to volume deficiency credits.

Revenue received from related parties related to service and product sales were as follows:



	Three Months Ended March 31,
(In millions)	2018		2017
Service revenues
MPC	$	471	$	255
Rental income
MPC	$	145	$	67
Product sales⁽¹⁾
MPC	$	4	$	2


(1)	There were additional product sales to MPC that net to zero within the consolidated financial statements as the transactions are recorded net due to the terms of the agreements under which such product was sold. For the three months ended March 31, 2018, these sales totaled $79 million. For the three months ended March 31, 2017, these sales totaled $57 million.

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The Partnership has operating agreements with MPC under which it receives a fee for operating MPC’s retained pipeline assets. The Partnership receives management fee revenue for engineering and construction and administrative services for operating certain of its equity method investments, and is also reimbursed for personnel services. The Partnership has an agreement with MPC under which it receives a fixed annual fee for providing oversight and management services required to run the marine business. The revenue received from these related parties, included in “Other income - related parties” on the Consolidated Statements of Income, was as follows:



	Three Months Ended March 31,
(In millions)	2018		2017
MPC	$	10	$	11
MarkWest Utica EMG	4		4
Ohio Gathering	4		4
Jefferson Dry Gas	1		1
Sherwood Midstream	3		1
Other	1		1
Total	$	23	$	22

MPC provides executive management services and certain general and administrative services to the Partnership under the terms of an omnibus agreement. Expenses incurred under this agreement are shown in the table below by the income statement line where they were recorded. Charges for services included in “Purchases - related parties” primarily relate to services that support the Partnership’s operations and maintenance activities, as well as compensation expenses. Charges for services included in “General and administrative expenses” primarily relate to services that support the Partnership’s executive management, accounting and human resources activities. These charges were as follows:



	Three Months Ended March 31,
(In millions)	2018		2017
Purchases - related parties	$	36	$	15
General and administrative expenses	16		8
Total	$	52	$	23

Also under terms of the omnibus agreement, some service costs related to engineering services are associated with assets under construction. These costs added to “Property, plant and equipment, net” were as follows:



	Three Months Ended March 31,
(In millions)	2018		2017
MPC	$	22	$	10

MPLX LP obtains employee services from MPC under employee services agreements. Expenses incurred under these agreements are shown in the table below by the income statement line where they were recorded. The costs of personnel directly involved in or supporting operations and maintenance activities related to rental services are classified as “Rental cost of sales - related parties”. The costs of personnel directly involved in or supporting operations and maintenance activities related to other services are classified as “Purchases - related parties.” The costs of personnel involved in executive management, accounting and human resources activities are classified as “General and administrative expenses” in the Consolidated Statements of Income. These charges were as follows:



	Three Months Ended March 31,
(In millions)	2018		2017
Rental cost of sales - related parties	$	1	$	—
Purchases - related parties	114		92
General and administrative expenses	23		25
Total	$	138	$	117

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The following table shows other purchases from MPC classified as “Purchases - related parties”. These purchases include product purchases, payments made to MPC in their capacity as general contractor to MPLX LP, and certain rent and lease agreements.



	Three Months Ended March 31,
(In millions)	2018		2017
MPC	$	27	$	—

Receivables from related parties were as follows:



(In millions)	March 31, 2018		December 31, 2017
MPC	$	308	$	153
MarkWest Utica EMG	1		1
Ohio Gathering	3		2
Jefferson Dry Gas	1		2
Sherwood Midstream Holdings	15		—
Other	2		2
Total	$	330	$	160

Long-term receivables with related parties, which includes straight-line rental income, were as follows:



(In millions)	March 31, 2018		December 31, 2017
MPC	$	21	$	20

Payables to related parties were as follows:



(In millions)	March 31, 2018		December 31, 2017
MPC	$	115	$	470
MarkWest Utica EMG	20		29
Ohio Gathering	—		8
Sherwood Midstream	11		8
Other	—		1
Total	$	146	$	516

During the three months ended March 31, 2018 and the year ended December 31, 2017, MPC did not ship its minimum committed volumes on certain pipeline systems. Under the Partnership’s pipeline transportation services agreements, if MPC fails to transport its minimum throughput volumes during any quarter, then MPC will pay the Partnership a deficiency payment equal to the volume of the deficiency multiplied by the tariff rate then in effect. The deficiency amounts are recorded as “Deferred revenue - related parties.” MPC may then apply the amount of any such deficiency payments as a credit for volumes transported on the applicable pipeline in excess of its minimum volume commitment during the following four or eight quarters under the terms of the applicable transportation services agreement. The Partnership recognizes related party revenues for the deficiency payments when credits are used for volumes transported in excess of minimum quarterly volume commitments, when it becomes impossible to physically transport volumes necessary to utilize the credits or upon the expiration of the credits. The use or expiration of the credits is a decrease in “Deferred revenue - related parties.” In addition, capital projects the Partnership is undertaking at the request of MPC are reimbursed in cash and recognized in income over the remaining term of the applicable agreements. The “Deferred revenue - related parties” balance associated with the minimum volume deficiencies and project reimbursements were as follows:



(In millions)	March 31, 2018		December 31, 2017
Minimum volume deficiencies - MPC	$	46	$	53
Project reimbursements - MPC	46		33
Total	$	92	$	86

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7. Net Income (Loss) Per Limited Partner Unit

Net income (loss) per unit applicable to common limited partner units is computed by dividing the respective limited partners’ interest in net income (loss) attributable to MPLX LP by the weighted average number of common units outstanding. Because the Partnership has more than one class of participating securities, it uses the two-class method when calculating the net income (loss) per unit applicable to limited partners. The classes of participating securities include common units, Series A Convertible Preferred units (the "Preferred units") and certain equity-based compensation awards; and in prior periods, general partner units and IDRs.

For the three months ended March 31, 2018, the Partnership had dilutive potential common units consisting of certain equity-based compensation awards. For the three months ended March 31, 2017, the Partnership had dilutive potential common units consisting of certain equity-based compensation awards and Class B units. Potential common units omitted from the diluted earnings per unit calculation for the three months ended March 31, 2018 and March 31, 2017 were less than 1 million.



	Three Months Ended March 31,
(In millions)	2018			2017
Net income attributable to MPLX LP	$	421		$	150
Less: Limited partners’ distributions declared on Preferred units⁽¹⁾	16			16
General partner’s distributions declared (including IDRs)⁽¹⁾	—			65
Limited partners’ distributions declared on common units (including common units of general partner)⁽¹⁾	467			198
Undistributed net loss attributable to MPLX LP	$	(62	)	$	(129	)


(1)	See Note 8 for distribution information.



	Three Months Ended March 31, 2018
(In millions, except per unit data)	Limited Partners’ Common Units			Redeemable Preferred Units		Total
Basic and diluted net income attributable to MPLX LP per unit:
Net income attributable to MPLX LP:
Distributions declared	$	467		$	16	$	483
Undistributed net loss attributable to MPLX LP	(62		)	—		(62		)
Net income attributable to MPLX LP⁽¹⁾	$	405		$	16	$	421
Weighted average units outstanding:
Basic	661			31		692
Diluted	661			31		692
Net income attributable to MPLX LP per limited partner unit:
Basic	$	0.61
Diluted	$	0.61

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	Three Months Ended March 31, 2017
(In millions, except per unit data)	General Partner			Limited Partners’ Common Units			Redeemable Preferred Units		Total
Basic and diluted net income attributable to MPLX LP per unit:
Net income attributable to MPLX LP:
Distributions declared (including IDRs)	$	65		$	198		$	16	$	279
Undistributed net loss attributable to MPLX LP	(3		)	(126		)	—		(129		)
Net income attributable to MPLX LP⁽¹⁾	$	62		$	72		$	16	$	150
Weighted average units outstanding:
Basic	7			362			31		400
Diluted	7			367			31		405
Net income attributable to MPLX LP per limited partner unit:
Basic				$	0.20
Diluted				$	0.19


(1)	Allocation of net income (loss) attributable to MPLX LP assumes all earnings for the period had been distributed based on the current period distribution priorities.

8. Equity

The changes in the number of units outstanding during the three months ended March 31, 2018 are summarized below:



(In units)	Common	General Partner		Total
Balance at December 31, 2017	407,130,020	8,308,773		415,438,793
Unit-based compensation awards⁽¹⁾	150,257	140		150,397
Contribution of refining logistics and fuels distribution assets⁽²⁾	111,611,111	2,277,778		113,888,889
Conversion of GP economic interests	275,000,000	(10,586,691	)	264,413,309
Balance at March 31, 2018	793,891,388	—		793,891,388


(1)	As a result of the unit-based compensation awards issued during the period, MPLX GP contributed less than $1 million in exchange for 140 general partner units to maintain its two percent GP Interest.


(2)	MPC agreed to waive approximately one-third of the first quarter 2018 distributions on the common units issued in connection with this transaction. As a result of this waiver, MPC will not receive $23.7 million of the distributions that would have otherwise accrued on such common units with respect to the first quarter 2018. See Note 4 for information regarding this acquisition.

GP/IDR Exchange – On February 1, 2018, MPC cancelled its IDRs and converted its economic GP Interest in MPLX LP to a non-economic general partner interest, in exchange for 275 million newly issued MPLX LP common units. These units had a fair value of $10.4 billion as of the transaction date as recorded on the Consolidated Statements of Equity. As a result of this transaction, the general partner units and IDRs were eliminated, are no longer outstanding and no longer participate in distributions of cash from the Partnership. MPC continues to own the non-economic GP Interest in MPLX LP. See Note 7 for more information on the net income per unit calculation.

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Net Income Allocation – In preparing the Consolidated Statements of Equity, net income (loss) attributable to MPLX LP is allocated to preferred unitholders based on a fixed distribution schedule, as discussed in Note 9, and subsequently allocated to the limited partner unitholders in accordance with their respective ownership percentages. Prior to 2018, when distributions related to the IDRs were made, earnings equal to the amount of those distributions were first allocated to the general partner before the remaining earnings were allocated to the unitholders, based on their respective ownership percentages. The following table presents the allocation of the general partner’s GP Interest in net income attributable to MPLX LP, for income statement periods occurring prior to the exchange of the GP economic interests:



	Three Months Ended March 31,
(In millions)	2017
Net income attributable to MPLX LP	$	150
Less: Preferred unit distributions	16
General partner's IDRs and other	61
Net income attributable to MPLX LP available to general and limited partners	$	73

General partner's two percent GP Interest in net income attributable to MPLX LP	$	1
General partner's IDRs and other	61
General partner's GP Interest in net income attributable to MPLX LP	$	62

Cash distributions – The Partnership Agreement sets forth the calculation to be used to determine the amount and priority of cash distributions that the common unitholders and preferred unitholders will receive. In accordance with the Partnership Agreement, on April 25, 2018, the Partnership declared a quarterly cash distribution, based on the results of the first quarter of 2018, totaling $467 million, or $0.6175 per common unit. These distributions will be paid on May 15, 2018 to common unitholders of record on May 7, 2018.

The allocation of total quarterly cash distributions to general, limited and preferred unitholders is as follows for the three months ended March 31, 2018 and 2017. The Partnership’s distributions are declared subsequent to quarter end; therefore, the following table represents total cash distributions applicable to the period in which the distributions were earned.



	Three Months Ended March 31,
(In millions)	2018		2017
General partner's distributions:
General partner's distributions on general partner units	$	—	$	5
General partner's distributions on IDRs	—		60
Total distribution on general partner units and IDRs	$	—	$	65
Common and preferred unit distributions:
Common unitholders, includes common units of general partner	$	467	$	198
Preferred unit distributions	16		16
Total cash distributions declared	$	483	$	279

9. Redeemable Preferred Units

Private Placement of Preferred Units – On May 13, 2016, MPLX LP completed the private placement of approximately 30.8 million 6.5 percent Preferred units for a cash purchase price of $32.50 per unit. The aggregate net proceeds of approximately $984 million from the sale of the Preferred units were used for capital expenditures, repayment of debt and general partnership purposes.

The Preferred units rank senior to all common units with respect to distributions and rights upon liquidation. The holders of the Preferred units are entitled to receive cumulative quarterly distributions equal to $0.528125 per unit. Following the second anniversary of the issuance of the Preferred units, the holders of the Preferred units will receive as a distribution the greater of $0.528125 per unit or the amount of per unit distributions paid to holders of MPLX LP common units.

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The changes in the redeemable preferred balance from December 31, 2017 through March 31, 2018 are summarized below:



(In millions)	Redeemable Preferred Units
Balance at December 31, 2017	$	1,000
Net income	16
Distributions received by preferred unitholders	(16		)
Balance at March 31, 2018	$	1,000

The holders may convert their Preferred units into common units at any time after the third anniversary of the issuance date or prior to liquidation, dissolution or winding up of the Partnership, in full or in part, subject to minimum conversion amounts and conditions. After the fourth anniversary of the issuance date, the Partnership may convert the Preferred units into common units at any time, in whole or in part, subject to certain minimum conversion amounts and conditions, if the closing price of MPLX LP common units is greater than $48.75 for the 20 day trading period immediately preceding the conversion notice date. The conversion rate for the Preferred units shall be the quotient of (a) the sum of (i) $32.50, plus (ii) any unpaid cash distributions on the applicable Preferred unit, divided by (b) $32.50. The holders of the Preferred units are entitled to vote on an as-converted basis with the common unitholders and will have certain other class voting rights with respect to any amendment to the Partnership Agreement that would adversely affect any rights, preferences or privileges of the Preferred units. In addition, upon certain events involving a change of control the holders of Preferred units may elect, among other potential elections, to convert their Preferred units to common units at the then-change of control conversion rate.

The Preferred units are considered redeemable securities under GAAP due to the existence of redemption provisions upon a deemed liquidation event which is outside the Partnership’s control. Therefore, they are presented as temporary equity in the mezzanine section of the Consolidated Balance Sheets. The Preferred units have been recorded at their issuance date fair value, net of issuance costs. Income allocations increase the carrying value, and declared distributions decreased the carrying value of the Preferred units. As the Preferred units are not currently redeemable and not probable of becoming redeemable, adjustment to the initial carrying amount is not necessary and would only be required if it becomes probable that the Preferred units would become redeemable.

10. Segment Information

The Partnership’s chief operating decision maker is the chief executive officer (“CEO”) of its general partner. The CEO reviews the Partnership’s discrete financial information, makes operating decisions, assesses financial performance and allocates resources on a type of service basis. The Partnership has two reportable segments: L&S and G&P. Each of these segments are organized and managed based upon the nature of the products and services it offers.


•	L&S – transports, stores, distributes and markets crude oil and refined petroleum products. Segment information is not included for periods prior to the Joint-Interest Acquisition and the Ozark pipeline acquisitions. See Note 4 for more detail of these acquisitions.


•	G&P – gathers, processes and transports natural gas; gathers, transports, fractionates, stores and markets NGLs.

The Partnership has investments in entities that are accounted for using the equity method of accounting (see Note 5). However, the CEO only views the Partnership-operated equity method investments’ financial information as if those investments were consolidated, in contrast to the non-operated equity method investments.

Segment operating income represents income from operations attributable to the reportable segments. Corporate general and administrative expenses, unrealized derivative gains (losses), certain management fees and depreciation and amortization are not allocated to the reportable segments. Management does not consider these items allocable to or controllable by any individual segment and, therefore, excludes these items when evaluating segment performance. Segment results are also adjusted to exclude the portion of income from operations attributable to the noncontrolling interests related to partially-owned entities that are either consolidated or accounted for as equity method investments. Segment operating income attributable to MPLX LP excludes the operating income related to Predecessors of the HST, WHC and MPLXT businesses prior to the dates they were acquired by MPLX LP.

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The tables below present information about income from operations and capital expenditures for the reported segments:



	Three Months Ended March 31, 2018
(In millions)	L&S		G&P		Total
Revenues and other income:
Segment revenues	$	646	$	569	$	1,215
Product related revenues	—		249		249
Segment other income	12		6		18
Total segment revenues and other income	658		824		1,482
Costs and expenses:
Segment cost of revenues	234		235		469
Purchased product costs	—		194		194
Segment operating income before portion attributable to noncontrolling interests and Predecessor	424		395		819
Segment portion attributable to noncontrolling interests and Predecessor	—		45		45
Segment operating income attributable to MPLX LP	$	424	$	350	$	774



	Three Months Ended March 31, 2017
(In millions)	L&S		G&P		Total
Revenues and other income:
Segment revenues	$	345	$	401	$	746
Product related revenues	—		196		196
Segment other income	12		1		13
Total segment revenues and other income	357		598		955
Costs and expenses:
Segment cost of revenues	148		113		261
Purchased product costs	—		140		140
Segment operating income before portion attributable to noncontrolling interests and Predecessor	209		345		554
Segment portion attributable to noncontrolling interests and Predecessor	53		36		89
Segment operating income attributable to MPLX LP	$	156	$	309	$	465



	Three Months Ended March 31,
(In millions)	2018			2017
Reconciliation to Income from operations:
Segment operating income attributable to MPLX LP	$	774		$	465
Segment portion attributable to unconsolidated affiliates	(53		)	(40		)
Segment portion attributable to Predecessor	—			53
Income from equity method investments	61			5
Other income - related parties	13			11
Unrealized derivative gains⁽¹⁾	7			16
Depreciation and amortization	(176		)	(187		)
General and administrative expenses	(69		)	(58		)
Income from operations	$	557		$	265

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	Three Months Ended March 31,
(In millions)	2018			2017
Reconciliation to Total revenues and other income:
Total segment revenues and other income	$	1,482		$	955
Revenue adjustment from unconsolidated affiliates	(137		)	(92		)
Income from equity method investments	61			5
Other income - related parties	13			11
Unrealized derivative gains related to product sales⁽¹⁾	1			7
Total revenues and other income	$	1,420		$	886

(1)

The Partnership makes a distinction between realized or unrealized gains and losses on derivatives. During the period when a derivative contract is outstanding, changes in the fair value of the derivative are recorded as an unrealized gain or loss. When a derivative contract matures or is settled, the previously recorded unrealized gain or loss is reversed and the realized gain or loss of the contract is recorded.



	Three Months Ended March 31,
(In millions)	2018			2017
Reconciliation to Net income attributable to noncontrolling interests and Predecessor:
Segment portion attributable to noncontrolling interests and Predecessor	$	45		$	89
Portion of noncontrolling interests and Predecessor related to items below segment income from operations	(19		)	(36		)
Portion of operating income attributable to noncontrolling interests of unconsolidated affiliates	(24		)	(16		)
Net income attributable to noncontrolling interests and Predecessor	$	2		$	37

The following table reconciles segment capital expenditures to total capital expenditures:



	Three Months Ended March 31,
(In millions)	2018		2017
L&S segment capital expenditures	$	190	$	97
G&P segment capital expenditures	319		307
Total segment capital expenditures	509		404
Less: Capital expenditures for Partnership-operated, non-wholly-owned subsidiaries in G&P segment	54		124
Total capital expenditures	$	455	$	280

Total assets by reportable segment were:



(In millions)	March 31, 2018		December 31, 2017
Cash and cash equivalents	$	2	$	5
L&S	5,958		4,611
G&P	15,046		14,884
Total assets	$	21,006	$	19,500

Equity method investments included in L&S assets were $1.17 billion at March 31, 2018 and $1.15 billion at December 31, 2017. Equity method investments included in G&P assets were $2.86 billion at March 31, 2018 and December 31, 2017, respectively.

11. Inventories

Inventories consist of the following:



(In millions)	March 31, 2018		December 31, 2017
NGLs	$	2	$	4
Line fill	7		8
Spare parts, materials and supplies	55		53
Total inventories	$	64	$	65

12. Property, Plant and Equipment

Property, plant and equipment with associated accumulated depreciation is shown below:



(In millions)	March 31, 2018		December 31, 2017
Natural gas gathering and NGL transportation pipelines and facilities	$	5,253	$	5,178
Processing, fractionation and storage facilities	4,729		3,893
Pipelines and related assets	2,388		2,253
Barges and towing vessels	553		490
Terminals and related assets	827		821
Refinery and related assets	839		—
Land, building, office equipment and other	873		770
Construction-in-progress	992		1,057
Total	16,454		14,462
Less accumulated depreciation	3,163		2,275
Property, plant and equipment, net	$	13,291	$	12,187

13. Fair Value Measurements

Fair Values – Recurring

Fair value measurements and disclosures relate primarily to the Partnership’s derivative positions as discussed in Note 14. The following table presents the financial instruments carried at fair value on a recurring basis as of March 31, 2018 and December 31, 2017 by fair value hierarchy level. The Partnership has elected to offset the fair value amounts recognized for multiple derivative contracts executed with the same counterparty.



	March 31, 2018					December 31, 2017
(In millions)	Assets		Liabilities			Assets		Liabilities
Significant unobservable inputs (Level 3)
Commodity contracts	$	—	$	(1	)	$	—	$	(2	)
Embedded derivatives in commodity contracts	—		(59		)	—		(64		)
Total carrying value in Consolidated Balance Sheets	$	—	$	(60	)	$	—	$	(66	)

Level 3 instruments include all NGL transactions and embedded derivatives in commodity contracts. The embedded derivative liability relates to a natural gas purchase agreement embedded in a keep-whole processing agreement. The fair value calculation for these Level 3 instruments used significant unobservable inputs including: (1) NGL prices interpolated and extrapolated due to inactive markets ranging from $0.26 to $1.47 and (2) the probability of renewal of 62.50 percent for the first five year term and 82 percent for the second five year term of the gas purchase agreement and related keep-whole processing agreement. For these contracts, increases in forward NGL prices result in a decrease in the fair value of the derivative assets and an increase in the fair value of derivative liabilities. The forward prices for NGL products generally increase or decrease in positive correlation with one another. Increases or decreases in forward NGL prices result in an increase or decrease in the fair value of the embedded derivative. Increases or decreases in the frac spread result in an increase or decrease in the fair value of the

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embedded derivative liability. An increase in the probability of renewal would result in an increase in the fair value of the related embedded derivative liability.

Changes in Level 3 Fair Value Measurements

The following table is a reconciliation of the net beginning and ending balances recorded for net assets and liabilities classified as Level 3 in the fair value hierarchy.



	Three Months Ended March 31, 2018						Three Months Ended March 31, 2017
(In millions)	Commodity Derivative Contracts (net)			Embedded Derivatives in Commodity Contracts (net)			Commodity Derivative Contracts (net)			Embedded Derivatives in Commodity Contracts (net)
Fair value at beginning of period	$	(2	)	$	(64	)	$	(6	)	$	(54	)
Total gains (losses) (realized and unrealized) included in earnings⁽¹⁾	—			3			5			8