The company we call MarkWest Energy is technically MPLX, renamed after MarkWest was bought out and merged into Marathon Petroleum in December 2015 (see Golden Parachutes Pop Open for MarkWest Top Management/Board). We still call it MarkWest because most people we know still call it that. It’s been over a month since MPLX/MarkWest issued its 2018 update, but we’d still like to analyze it. The company had a breakout year, earning more in 2018 than at any time in the company’s history.
MPLX added 11 plants with 1.5 billion-cubic-feet-per-day of processing and 100,000 barrels-per-day of fractionation capacity–plants located in various shale plays, not just the Marcellus/Utica. However, the M-U represents the lion’s share of the company’s processed volumes and revenue. Yes, MPLX is expanding into other plays, but only because it has such a dominate, stable position in the M-U.
Below is MPLX’s 2018 (and 4Q18) update, including financials:
MPLX LP Delivers Extraordinary Results in 2018
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MPLX is not slowing down. Have a look at the most recent slide deck. On page 17 is a list of new gas processing and fractionation plants planned (some already under construction). Six of the 12 will be located in the Marcellus/Utica.
MPLX_4Q18_Conf_Call_Slides-_Final
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On the earnings call, MPLX President Mike Hennigan had the following to say in his opening/prepared remarks about the M-U:
In the Northeast, we continue to benefit from the increased condensate and natural gas volumes on our Cornerstone and other Utica buildout systems. The next phase of our strategy is to equip these pipelines to handle normal butane, providing another outlet for growing liquids production in the region.
In the Gathering & Processing segment, we expect to add approximately 800 million cubic feet per day of processing capacity and 100,000 barrels per day of fractionation capacity in 2019. This is incremental to the processing capacity that came on line in the fourth quarter of 2018, which will help support the production growth that we anticipate in 2019. We reiterate our commitment to a self-funding model and to finance our organic growth capital plan without issuing any equity, while maintaining an investment grade credit profile and strong distribution coverage.
Before I turn the call over to Pam, I want to summarize where we are strategically. Our core regions continue to provide many attractive investment opportunities. At the same time, we are committed to remaining disciplined on capital deployment. In the Northeast, we are optimistic on the production growth profile in the Marcellus and Utica basins. We actively engage with our producer customers in these regions, and our planning process is real-time and dynamic. We expect to add 400 million cubic feet per day of processing capacity in 2019, which is in addition to the 600 million cubic feet per day brought on line in the fourth quarter. We have further capacity expansions planned in 2020 and beyond.
Our goal is to complete these new facilities on a just-in-time basis to meet our producer customer needs. We expect growth in the Northeast to be further enhanced by pipelines that have recently been placed in service. Natural gas pipeline, such as NEXUS, Atlantic Sunrise and Rover, which is now fully operational, provide optionality to producers in the region while Mariner East 2 provides a similar solution for NGLs. These pipelines are expected to increase netbacks for our producers on both the natural gas and NGL side of the business. The positive production growth profile and the enhanced takeaway capacity clearly benefits our investments in the region.*
However, it wasn’t all smooth sailing in 2018 for MPLX. You may recall an explosion and fire in December at the MarkWest gas processing plant in Chartiers (Washington County), PA that sent four people to the hospital, one of whom later died (see Sad Postscript: Man Dies of Injuries from MarkWest SWPA Explosion). The resulting outage at that plant caused Range Resources to lose about 10 Bcf of production (see Range SWPA Production Takes Hit After MarkWest Plant Explosion).
That episode came up on the earnings call:
Jeremy Tonet
Good morning. I just want to start off with the Northeast Appalachian Gathering & Processing, there. You called out $22 million of onetime items in the PR. But, I was just wondering, was there anything else happening there in that segment? It seemed a bit light when normalizing for that, given how many new facilities were coming on line during the quarter. So, I was wondering how much they contributed. And moreover, it seems like Appalachian producers are reigning in the production forecast for 2019. So, could you provide more color on what you’re seeing in Appalachia and what underpins your confidence in hitting your ‘19 and ‘20 guide here?
Mike Hennigan
So, a lot of question in there, but let me try and break it down. So, we did face some headwinds the quarter with our Houston plant unplanned downtime as you mentioned. But, there was actually two headwinds there. One was the Houston plant down for some time, and then the second was we actually curtailed because of ME2 and not being on line. And if you recall, for several conference calls, I was saying that we were in pretty good shape until we get towards the end of the year, which is when we needed ME2 to come up. So, we actually had to curtail a little bit in the quarter due to that. We had the Houston complex unplanned downtime, which led us to have a little bit of reduction in volumes in the quarter. Roughly, it was about 5% to 6% of our processing capacity was off as a result of that. We expect that to be onetime and we’re in normal operations as of this point. So, we’re feeling pretty good about going forward and we still feel very good about our guidance.
To your point, some producers have guided slightly differently, mentioning Antero, since that’s one of our largest players in the region. We brought on two plants also to your point. But, those two plants for Antero that came onshore with 10 and 11, came on towards the latter part of the quarter. So, you’re really seeing them in full steam in the first part of ‘19. We also have Sherwood 12 and 13 planned in 2019 for the Northeast. I would also add that we have a plant in the stack planned in 2019, as well as a plant in the Permian in 2019. So, we’re still feeling pretty good about our guidance, despite the fact we had some loss of volume in the quarter.*
A second question about the M-U came up during the Q&A part of the call:
Shneur Gershuni
I was wondering, if you can expand a little bit on your response to Jeremy about the Northeast expectations. Are you able to sort of delineate a little bit more about how the cuts are reflected in your guidance, because you gave your guidance out in November. And can you talk about the incremental capital? I think, you were talking about the Sherwood plants that are coming on line. Are there new NBCs coming in place, is that what gives you the confidence, given the drop in rigs around your assets, given drop in docks and so forth? I was just wondering if you can sort of expand on it a little bit to give us a little more confidence in the numbers.
Mike Hennigan
Yes. Shneur, I will comment exactly what I just said for Jeremy but I’ll try and give you little bit more details what you’re asking. So, our philosophy of there, as I said in my prepared remarks, is to be real-time and dynamic and work with the producers on a real-time basis. So, we’re not looking to deploy capital in the region unless we think we’re going to process gas there. So, we have that communication going on. Without getting into some details, we do have some NBC protection as part of our contractual obligations up there, so that’s also an important point of what we’re looking at. But, the bottom line is we’re staying in contact. I mentioned the Antero just is such a large player that has a lot of the growth in Sherwood complex, and they have adjusted guidance but there is still showing 17% to 20% growth in their guidance for 2019. That’s very consistent, as I said through our meetings with them, as we look at what’s going on. And then our other big customers in that area, whether it’s Range or EQT or Southwestern or Ascent or anything — we’re having real-time conversations with them. And at this point, we still feel very good about the growth in the region.
I mean, if you look at the numbers year-on-year, they are still pretty strong up in the Marcellus and Utica. As I look at the development in the area, continues to be very strong, despite I understand some people are concerned about potential cutbacks. We’re not seeing that in the areas that we are operating. And in addition to that, I pointed out in the prepared remarks that the netbacks up in the Northeast are getting better as a result of all these gas residue pipeline takeaways and then ME2 liquid takeaways will also change the netback on the liquid side of it. So, we’re still pretty confident and feel pretty good about our development program. It’s two plants up in the Northeast, 1 plant in the stack, 1 plant in the Permian for 2019.*
*Seeking Alpha (Feb 7, 2019) – MPLX LP (MPLX) CEO Gary Heminger on Q4 2018 Results – Earnings Call Transcript
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