Mplx LP Q1 FY2020 Earnings Call

Welcome to the MPLX First Quarter 2020 Earnings Call. My name is Sheila and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Kristina Kazarian. Kristina, you may begin.

Good morning and welcome to the MPLX first quarter 2020 earnings webcast and conference call. The synchronized slides that accompany this call can be found on mplx.com under the Investors tab. On the call today are Mike Hennigan, President and CEO; Pam Beall, Chief Financial Officer; and other members of the management team. We invite you to read the Safe Harbor statements and non-GAAP disclaimer on Slide 2. It’s a reminder that we will be making forward-looking statements during the call and during the question-and-answer session that follows. Actual results may differ materially from what we expect today. Factors that could cause actual results to differ are included there as well as our filings with the SEC. Now, I’ll turn over this call to Mike Hennigan for opening remarks.

Thanks, Kristina. Good morning and thank you for joining our call. Let me start by sharing with you some of the steps that we've taken in response to the current COVID-19 crisis, which has affected all of us and has impacted the demand for hydrocarbons for which we provide services. To better protect the health and safety of everyone, in mid-March, we asked many employees to start working from home, so that those employees who must be onsite to run our operations could have the space they need to properly social distance and implement other protective measures. I appreciate the professionalism and flexibility with which all our employees have approached this change to how we work and I especially want to thank those employees who continue to run our business every day. Thank you for the commitment you've shown to our company and those who rely on essential products and services we provide by continuing to ensure this important work is done safely and with excellence. Second, we are grateful for everyone working on the frontlines of this pandemic. This quarter, we supported the efforts of our healthcare workers across the country; our sponsor MPC donated 575,000 N95 masks to 46 different hospitals across the country. We will share some of MPLX's global support efforts later in the call. As we progressed through the quarter, we worked to adapt to this very dynamic situation created by the COVID-19 pandemic and oil price tensions. MPLX had a relatively strong quarter as the impact of demand destruction began to affect the business in late March. Earlier today, we reported adjusted EBITDA for the first quarter of 2020 of $1.3 billion, which is consistent with the prior year first quarter. In this environment, we are taking proactive steps to reduce our 2020 capital target by over $700 million and forecasted annual operating expenses by approximately $200 million. You may recall that the process of high grading our capital portfolio has been underway since the combination with ANDX last year. When the combination closed, our initial 2020 growth plan was $2.6 billion. On our third quarter 2019 earnings call, we announced a reduced target to approximately $2 billion. Last quarter, we announced that we had identified additional opportunities to further streamline our growth capital expenditures, focusing on the most attractive returns, reducing our growth target to $1.5 billion. Today, we announced that we are reducing our 2020 growth capital spending by over $600 million to approximately $900 million. Our 2020 growth capital spend target is now primarily related to projects that are already underway, including the Wink-to-Webster crude oil pipeline, the Whistler natural gas pipeline and the Mt. Airy Terminal expansion. Additionally, the original BANGL project scope is no longer being pursued. Instead, we are working with others to optimize existing pipeline capacity while continuing to meet producers’ needs for flow assurance and future growth. Also, the associated fractionation capacity and export facility have been deferred. We also announced that we are reducing our 2020 net maintenance capital target by about $100 million to approximately $150 million. Looking forward, we are maintaining our goal to achieve positive free cash flow, net of both capital investments and distributions in 2021 and highlight that plan on Slide 4. This inflection is expected to be achieved through a combination of continued annual earnings growth and the high grading of our growth capital plan. As a result, we believe that we will be positioned to broaden our value creation options and enhance our long-term financial flexibility. Turning to Slide 5: Given the current business environment, we've been getting many questions on the security and stability of our cash flows in both of our business segments. Our Logistics and Storage segment made up approximately two-thirds of our 2019 EBITDA. The largest part of our L&S business was MPC's Refining Logistics and Fuels Distribution or RLFD, which had a combined EBIT of approximately $1.4 billion. This combined RLFD business has a combination of fee-for-capacity and highly stable service fees with minimum volume commitments. Similar to RLFD, our terminals and marine businesses are primarily fee-for-capacity and highly stable service fees with minimum volume commitments. The remainder of our L&S business with MPC includes crude and refined product pipelines and certain equity method investments. Our crude and refined product pipelines are backed by substantial MVCs and MPC represents approximately 84% of our 2019 volumes. Turning to Slide 6: We provide a closer look at the characteristics of our Gathering and Processing or G&P segment. G&P represents the remaining one-third of MPLX's 2019 EBITDA. The Marcellus is our largest region within G&P, approximately 74% of the processing capacity in the Marcellus is backed by MVCs. Processing capacity in our Utica and Southern Appalachia regions is backed by 27% and 24% MVCs respectively, percentage of Southwest and Mid-Con region processing capabilities backed by MVCs vary. Our key producer customers have significant hedging programs in place in 2020 and 2021. In addition, last week, our largest public customers announced that their 2020 production plans are being maintained as well as additional measures to improve their balance sheets and liquidity in the current environment. The silver lining to the expected decline in Permian crude and associated gas production is the support it provides to the price of natural gas, especially for the Northeast on-purpose gas producers. The natural gas strip is also providing an opportunity for producers to further hedge their production into the future. Turning to Slide 7: MPLX has always been a responsible corporate leader. I wanted to take a moment to comment on how this will remain an ongoing focus and highlight some significant recent achievements. In 2019, we earned EPA's Energy STAR Challenge Award at several of our terminals. We also now have 32 sites that have been recognized under OSHA's Voluntary Protection Program or VPP. VPP recognizes employers and workers who have implemented effective safety and health management systems and maintained injury and illness rates below National Bureau of Labor Statistic averages for their respective industries. As I mentioned earlier, the COVID-19 pandemic has created unprecedented challenges in the personal and professional lives of many. It also has created an opportunity for us to help our communities in unique ways. In El Paso, Texas, our transport fleet transported an emergency mobile clinic to the El Paso Airport to provide medical relief for the area. Marathon Pipe Line also donated meals to first responders and staff at local nursing homes throughout its operating regions. Again, we are grateful for everyone working on the frontlines of this pandemic and are proud to do our part by contributing supplies to organizations that are supporting those in crisis. Now, let me turn the call over to Pam to discuss our first quarter 2020 operational and financial results.

Thanks, Mike. I'm pleased to report that MPLX delivered strong results for the first quarter with adjusted EBITDA of $1.3 billion and distributable cash flow of $1 billion, which provided continued strong distribution coverage of 1.44 times and leverage of 4.1 times. As Mike mentioned previously, we announced proactive steps to reduce our capital spend and forecasted operating expenses to offset the expected impact of lower volumes through our assets caused by the COVID-19 business environment. Slide 9 provides first quarter Logistics and Storage business segment highlights. Total pipeline throughputs averaged 5.1 million barrels per day, an increase of approximately 2% versus the first quarter of 2019. Terminal throughput averaged 3 million barrels per day for the quarter, a decrease of 8% versus the first quarter of 2019. This decrease was primarily attributable to planned and unplanned downtime at some of MPC's refineries. During the first quarter, the Wink-to-Webster Permian crude oil pipeline project, in which we have a 15% equity ownership interest in the joint venture, continued to progress. We continue to expect that the pipeline system, of which 100% of the contractable capacity is committed with MVCs, will be placed in service in the first half of 2021. The Whistler natural gas pipeline project also continued to progress. The 2 Bcf per day capacity project, which is more than 90% committed with MVCs, is expected to start up in the second half of 2021. Slide 10 provides first quarter Gathering and Processing business segment highlights. Gathered volumes averaged 5.8 billion cubic feet per day, representing a 3% decrease versus the first quarter of 2019. This decrease was primarily driven by unplanned downtime related to a producer customer in our Utica dry gas region. Marcellus and Utica gathered volumes averaged 3.2 billion cubic feet per day, a 5% increase versus the same period last year. Quarterly processed volumes increased 3% versus the same quarter last year to 8.8 billion cubic feet per day, primarily driven by volume growth at our Sherwood complex, which had two new plants placed in service in the fourth quarter of 2019. Marcellus and Utica processed volumes averaged 6.2 billion cubic feet per day, a 3% increase over the first quarter of 2019. Fractionated volumes averaged 553,000 barrels per day, representing an 8% increase over the first quarter of 2019, primarily driven by the Sherwood fractionator that came online in the fourth quarter last year. Marcellus and Utica fractionated volumes increased 6% over the first quarter of 2019 to an average of 490,000 barrels per day. Turning to our financial highlights on Slide 11: Adjusted EBITDA was $1.3 billion for the first quarter of 2020. The Logistics and Storage segment adjusted EBITDA was $872 million, while the Gathering and Processing segment contributed $422 million in adjusted EBITDA. For the quarter, we generated approximately $1.1 billion of distributable cash flow, and we'll return for the quarter approximately $760 million to our MPLX unitholders. This provides distribution coverage of 1.44 times and resulted in $319 million of retained DCF. The bridge on Slide 12 shows the change in adjusted EBITDA from the first quarter of 2019 to the first quarter of 2020. The Logistics and Storage segment increased $44 million year-over-year, primarily driven by increased pipeline volumes as well as growth in the marine business. The Gathering and Processing segment decreased $13 million, primarily driven by lower weighted average NGL prices, partially offset by growth in processed and fractionated volumes from new assets placed into service over the past year. Slide 13 provides a summary of key financial highlights and select balance sheet information. We ended the quarter with a leverage ratio of 4.1 times and approximately $2.8 billion available on our revolving bank facility, and $1.5 billion available on the intercompany loan facility with MPC. As we look forward, we expect to continue to grow free cash flow by allocating capital investments to the highest return projects with a long-term strategic focus. This disciplined capital investment approach should allow us to increase our financial flexibility and distribution coverage while maintaining an investment grade credit profile. Now, let me turn the call back over to Kristina.

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

Our first question will come from Shneur Gershuni with UBS. You may go ahead.

Mike, congratulations on your new role. I’m not sure if it’s the best time for it, but congratulations nonetheless. To begin, I’d like to discuss the L&S segment in general. I appreciate the details about the MVCs presented on Slide 5. However, it's challenging to assess Q1 performance while looking ahead considering the current environment. Reports indicate that refined product demand has decreased significantly over the past two months, although we've observed some signs of improvement according to a UBS Evidence Lab study. Could you share how much of the Q1 EBITDA in that segment is likely to be repeatable in Q2, or in other words, how much is safeguarded by MVCs with both MPC and some third-party capacity owners?

Hey, Shneur, that's a great question. We aimed to provide more details on the MVCs since there has been a lot of curiosity about this topic. I will give you an overview of the L&S situation, and then Pam can elaborate on the numbers. At a high level, it's well-known that the demand for gasoline, diesel, and jet fuels changed significantly due to the pandemic. We noted that gasoline experienced approximately a 50% drop overall, with the West Coast seeing a bit more and the Gulf a bit less, averaging around 50%. We are cautiously optimistic about a recovery of about 5% to 15% depending on the region, but there's still much progress to be made. We do see signs of recovery starting to occur. However, we still have 30 million barrels of light product inventory and 50 million barrels of crude, both above the five-year average. Hence, we have a long way to go. MPC is indicating that minimum rates will continue into the second quarter. Currently, the MPC system has reduced its operations to about two-thirds of its capacity, which affects the L&S business you mentioned. Now, I’ll let Pam provide additional numbers to enhance our discussion and offer more insight into the costs for the quarter.

Yes, hi Shneur. As Mike mentioned, we evaluated the potential EBITDA impact if we operated at minimum volume commitments for the entire quarter to give you an idea of what that would entail. We also emphasized in the slides that not every service provided to MPC is vulnerable to volume risk and minimum volume commitments. Many of them have fee-for-capacity structures and aren't affected by volume fluctuations. Our estimation suggests a hit of about $150 million to EBITDA for the quarter under minimum volume commitments. Additionally, we have other factors to consider. One factor we've consistently highlighted is our NGL price sensitivity, which remains at approximately $23 million a year for every $0.05 change in the NGL price basket. In our first quarter, the average price was around $0.40 a gallon, and now it’s about $0.30 a gallon. If this pricing holds steady in the second quarter, a $0.10 change could translate to approximately $11 million to $12 million for the quarter. Another point I want to bring up regarding sensitivity is curtailments, as we've received inquiries from several investors about this. Based on current curtailments, we estimate a potential impact of $40 million to $50 million in the quarter. While we’re not providing guidance for the year or formal guidance for the second quarter, we wanted to share these sensitivities as you make assumptions about these conditions continuing throughout the quarter or only part of it.

That was super helpful and really do appreciate the transparency there. Maybe as a follow-up question. You announced pretty steep CapEx reductions for 2020, far steeper than we were thinking. And you also had some comments about how you expect to be free cash flow positive after distribution in 2021, but you didn't say that about 2020. Should we just assume that you're probably cash flow neutral or close to that this year? Is there any color around how we should be thinking about that for 2020?

Yes, Shneur, it's Mike. On paper, it could shift slightly either way. We initially believed we would reach our goal by 2021 based on a higher capital number. With the lower capital number, we'll have to see how the remainder of the year unfolds. As mentioned in our prepared remarks, the natural gas situation has improved significantly due to the reduction of associated gas in the Permian, among other factors. One key change in our capital program is that we are no longer pursuing the original BANGL project. I want to emphasize that we had already made final investment decisions for Whistler and Wink-to-Webster but had not for BANGL. However, this does not mean we are not dedicated to providing flow assurance for our producers. We've adjusted our strategy to utilize existing pipelines in collaboration with other parties. Therefore, the original project scope is what we are stepping back from, leading to a substantial change in our capital plans. I know the market has been curious about this for several quarters, and we have consistently stated our intention to find solutions for producers while maintaining interest in areas beyond Bellevue. The current volume expectations necessitate a change in our capital requirements, and that's our direction now. Overall, we're still committed to our NGL solution, but the original scope has been deferred, and we have a new scope reflected in our guidance regarding the capital reduction. This has resulted in a significant reduction, and I hope this clarifies things for you.

Thank you. Next we'll hear from Jeremy Tonet with JP Morgan. You may go ahead.

This is Charlie on for Jeremy. Just following up on some of the last comments there. I understand that you're still targeting free cash flow generation in '21. Just curious if the recent down cycle, how that’s kind of impacted your view on what the right level of leverage is as it relates to the 4 times that you've talked about in the past? And then kind of following on that, as you look at capital allocation next year, how that might influence how you view leverage versus buybacks?

Yes, so let me just highlight one additional thought that I should have shared when Shneur asked the question about the potential impact to EBITDA. So obviously, the ability to get to free cash flow positive starts with EBITDA, and the strength of that. And so as we mentioned today, as Mike mentioned, we also have a sound $200 million of operating expense reduction, so that's going to help offset a significant portion of what we think is going to be the impact to EBITDA here in the second quarter of lower volumes across the system. So, I just wanted to get that out there too as we talk about some free cash flow. That's going to be an important element of our strategy to offset that volume impact. But then when we think about free cash flow, there are just a few levers that we have, and certainly managing capital is one of them. And maintaining an investment grade credit profile and maintaining our distribution to our sponsor are important. So when we think about leverage, we're very comfortable where we are at 4.1 times, we would feel comfortable seeing leverage go up to a higher level, recognizing that it would not be there, permanently, we'd be bringing it back down. Over the longer term, we feel comfortable with leverage. And I think everyone in the space has been moving their leverage down, not up. And so 3.5 times to 4 times is an area that we will feel comfortable operating-in in the future. And then when we get to that place where we have excess cash flow, which will be a nice luxury to have, we'll determine if we'll use that for additional debt reduction or if we'll return it to shareholders in the form of unit buyback. So getting a little less leverage in the whole financial system will give us that flexibility to determine how to best create value for the unitholders.

Just a second question on your CapEx program. You kind of talked through 2020. Just curious on any thoughts, high level, on 2021. I think that number was $1 billion that you put in last quarter's slide deck. Just curious if there's any thoughts there on potential deferrals?

Yes. We haven't shared much about how 2021 will turn out as we are still observing the ongoing pandemic. As I mentioned earlier, we feel cautiously optimistic about beginning to recover. However, there is still much to accomplish. At this stage, we are focused on our 2020 plan, and as the year unfolds and we gain better insight into the situation, we will provide more information about our expectations for 2021.

Our next question will come from Spiro Dounis with Credit Suisse. Your line is open.

Just want to go to the Northeast, if we could. Look like you’ve tabled some Northeast processing expansions. At the same time it seemed like Northeast actually has a tangible growth potential again. So I guess how are you thinking about Northeast capital allocation going forward? Have you made a decision to diversify within the basin? Or could we actually see you pivot back at some point?

The situation regarding gas is clearly evolving with the current decrease in associated gas. We have consistently stated that we believe the Northeast remains a reliable source of cash flow for us, and we expect the producer community to remain stable even in the previous market conditions. This perspective hasn’t changed, and in fact, it appears that there is a stronger opportunity for the Northeast to maintain or even slightly grow its output. There has been some worry regarding the overall level of natural gas prices and its impact on producers. However, as everyone can observe, the 2021 pricing is now above $2.75, and we are currently above $2 in the near term. While the dynamics around absolute gas prices have changed, our view on the situation has not. We have shared our belief that the Northeast would continue to provide solid cash flow and that these volumes would not significantly decline, even prior to recent developments. With the current situation unfolding, there is greater stability in gas prices and production volumes for the Northeast.

Switching to Permian now just a little bit. I guess can you just update us on the broader strategy there. I know at one point the goal was to build out that super system and look everything has sort of changed now. Just curious maybe where that stands and you’ve augmented that strategy? And then in that context and just thinking around the BANGL and the related fracs, it sounds like you’re still moving forward with the frac side of that equation. Just curious, can you walk us through the commercial interest that was really driving those two projects to stay to some degree on the board. And can you just clarify on BANGL on the new plan there to provide a flow assurance. Are you planning to offload onto someone else's NGL pipe, are you actually talking about partnering on an existing NGL pipeline?

Yes. So on the first part of the question, we're still committed to the Permian growth that's going to occur, albeit now slower. So one of the things that we've been trying to do in that business as you’ve heard is, have discipline around the investment and where we're putting our capital and the Permian still in our view is still a good long-term area. Obviously in the short-term with crude prices in the low 20s, the expectation for producers to adapt to that is not unexpected. We hesitated as you know, for several quarters we’ve talked about because the capital commitment for the original scope was a much larger commitment and we wanted to have a surety of the volumes. Well, the current situation obviously has changed that. So, we're still committed to the area. But we are working with existing assets that are out there and we are still committed to an NGL solution. It just won't be the original scope that we had envisioned early on. So, I can't give you a whole lot more color there as Tim and his team is working on the commercial situation as far as putting our NGL solution together. But I do believe, like I said, all along the industrial logic for the project still holds. Now the pace of volume is such that it'll be a little slower as producers adapt to the current environment, which we certainly understand. And I would tell you that I think this is part of what we've had in our mind all along as we wanted to not commit to that full scope until we were really sure that the volume commitments would be there. What's happening in the market, obviously, and we understand it, is the volume commitments are slower and therefore the capital requirement needed to adjust. And that's kind of what we've done with the project. So still believe in the industrial logic, still believe in the projects. Overall goal, still believe in producer outlets for NGLs that also holds just the scope of how we attack it, is what's changing.

Thank you. Our next question will come from Michael Blum with Wells Fargo. Your line is open.

Could you provide more information about the write-down you experienced this quarter? It appears that despite your comments indicating improving gas fundamentals, a significant portion of the write-down was related to gas segments. What factors contributed to the impairment?

Yes, it's really, we had a triggering event, which caused us to look at the longer term forecasts. And I'll just note that in the Marcellus, primarily due to write-down of goodwill, it was not an impairment of the assets themselves. And I think that's an important thing to recognize. And so, it's just with a rapid change in our stock price, the rapid change in the NGL prices, the commodity prices and the concern over the outlook for demand is what caused an examination of the value that we had, the goodwill on the balance sheet as well as in more limited cases the assets themselves.

Okay. My second question is about the $200 million reduction in operating expenses. Where will that come from? Could you provide more detail on that?

Yes, all of this is coming from the Logistics and Storage segment of the business. We capitalized some projects while expensing others. This is one key difference between our approach and that of MPLX. There are projects that they would have capitalized that we chose to expense. Consequently, we have a significant number of opportunities to invest in projects that are categorized as expenses rather than capital expenditures. This gives us a good opportunity to reduce spending. Essentially, this relates to many small projects, all within the Logistics and Storage area of our business.

Next we'll hear from Christine Cho with Barclays. You may go ahead.

I'm not sure if it's too early to think about this, but does the pandemic change how you guys are thinking about the MVCs on the legacy products and crude pipes that expire in the 2022 timeframe? What I understand those MVCs were put into place at IPO and were probably more necessary at that time to provide a stable income for the MLP. But MPLX was a lot smaller back then, whereas now, it's a lot bigger, more diversified. Should we think that there's always going to be some level of MVCs or is it an option that you just let them roll off because what we're going through is a once in a 100 year event?

Yes, we would expect the contracts to have an automatic extension provision in the majority of them. So we would anticipate those to simply extend in the normal course as they are currently structured.

Okay. And the automatic renewals are on an annual basis?

No. Five-year extensions for the pipeline.

And then, I appreciate your commentary on the Northeast. But can you expand on what sort of conversations you're having with the producers in the Northeast? And how should we think about your exposure given it is a bit more wet gas focused? And while gas prices are seeing a boost, the NGL realizations are still a little bit of a question mark?

Yes, Christine, this is Mike. So, I'll comment first off. Obviously, where crude price and NGL price is, the wet gas is under a little more pressure than is normal. The unknown question is how quickly does crude price return to a normal place and then how much does the NGL price change as a result of the U.S. refining system running at minimum. So, our expectation is propane prices will be coming up as the situation evolves. I don't know that any of us know really at this point how long the demand recovery will be as a result of the pandemic, shelter-in-place and reopening of the economy is going to play itself out. So, I think that's an unknown. Obviously the boost of natural gas pricing is helping that. And at least in our view, in general, over the longer-term, we still believe overall that, that wet gas economics are better than dry gas economics for the long term. You get that extra boost. Obviously to your point, in the very short-term, crude prices have gotten pretty low, propane prices have gotten pretty low. Pam has commented on what that sensitivity is for us. But assuming cautious optimism to get the economy going back in the right direction, assuming all the health situation works out fine for everybody and a recovery in the economy and a recovery in GDP, we should see a recovery in NGL prices as well. So, if anything, kind of in a weird way, the pandemic is actually more bullish for the gas/NGL recovery coming out of it once we can see to the point that we actually get out of it. I just think the real unknown is how long does that take and how long do refineries run at minimum. We've stated for MPC that we went to minimum in the back half of March and into April and we've given guidance at MPC for the second quarter that basically says we still expect the U.S. refining system to run at minimum for quite some time to draw down the inventories that were built as a loss in demand. And while that continues to occur, there's less butanes, there's propanes et cetera being produced. So, I guess we’ll all have to watch to see how long it plays itself out. But I think directionally it's good for the gas business in general.

Yes. Christine, I'll just add that, everybody talks about associated gas and how that's helpful for the Northeast on-purpose gas producers. But as associated gas comes down, so does associated NGLs and probably less has been written about that, but there is an expectation that there’ll just be lower NGLs as a result of lower associated gas coming out of the Southwest in particular. So, that could set itself up well for a benefit for NGLs going forward, even though we're not seeing it in the price today.

Our next question will come from Ujjwal Pradhan with Bank of America. Your line is open.

Just wanted to follow up on your positive free cash flow target in 2021. Does that assume flat distributions from here on and a full recovery of L&S to 2019 levels, and assuming full recovery of refined products demand there, really trying to get at what sort of confidence level in meeting that target with the variables here?

That's a great question. Our distribution philosophy is determined by the Board, and we've had extensive discussions about it this time around. Many of our competitors have chosen to decrease their distributions, but the Board feels it is best for us to maintain the distribution while pausing on growth, keeping it at a flat level. This year will be particularly interesting to see how things unfold. We don't have certainty regarding how the pandemic will progress or if it will extend longer than anticipated. The health and safety of everyone involved is the top priority, which, in turn, affects the economy. As previously mentioned, we lack strong conviction about the anticipated capital number for 2021, as it may change based on how the situation develops. Generally, we see achieving full distribution payout and reaching our desired capital level as a goal for 2021. Depending on the recovery and gas production, we might get close to this in 2020. All these factors come into play. Our aim remains to achieve that target; we have several options available. Currently, we want to reduce our capital to focus on developing strong return projects, and keeping distribution flat at previous levels feels like the right decision for now.

Ujjwal, I’d just like to add that as we've looked at the market for some time now, there really hasn't been a reward for growing distributions. And at one time, there was a very high correlation between distribution growth and yield. And that relationship is fundamentally broken and a lot of people are choosing to value the midstream in a different way, EV to EBITDA instead of yield-oriented measurements. But also just point out that in terms of our payout ratio, I would say that we're at the high end. So 2019, we’ve about 74% of our operating cash flow paid out in the form of distribution. So if you look across the space, whether it's MLPs or C corps, we're right there at the high end. So we don't think that investors in this environment are rewarding or really are looking for distribution growth. They're really more interested in midstream companies that have that fortressed balance sheet, that have the ability to sustain their distributions over a long period of time.

I would like to add that investor feedback in this area is quite varied. Many investors strongly favor maintaining the current distribution levels, while others believe it may be a good time to lower it. As Pam mentioned, we are operating at the high end. We think this approach is appropriate for us right now, but it is a topic we continually discuss with the Board throughout the year.

Got it. Thanks for that, Mike. And maybe a quick follow-up to your comment earlier on the competition that we have seen between associated gas versus dry gas in the Northeast and how it could benefit in the current environment, and especially also your comment about the NGL pricing from here on. What would you expect to be the driver from here to see potential uptick in production growth in the Northeast and increase in G&P volumes in your system in the Northeast in 2020, 2021?

Yes. Again, I think a lot of it is, depends on how the demand side of this pandemic plays itself out across the whole economy. Obviously the situation, prior to it occurring was, people questioning whether the Northeast was going to continue to maintain or grow. Our view was, it was going to at least maintain and grow a little bit. Obviously, that's bolstered now. But I think, the unknown that's still out there and we don't have this crystal ball either is, how does the U.S. economy respond to this. When does it recover back to I'll say normal levels and have the demand side of the equation. Right now is the thing that I think is still the most unknown. Our focus always is, worry about the things we can control, be conscious of the things that we don't control, but at the same time realize that we don't control some of those. So, part of it is for us to be thoughtful and watch as the demand side of this plays itself out.

And let me just add that another consideration is that the producers themselves have been and remain under a lot of pressure themselves to generate free cash flow and be a returner of capital to investors, and that's been a big focus for the Northeast producers. Those are among the largest that are our customers. And so, I think they're going to continue to live within their cash flow means and maintain or grow their production within their ability to do that. So, that's another factor. Certainly that gets supported with both higher natural gas and NGL prices, gives them the more financial flexibility, but they're also very mindful of their maturities that come up and their financial position as well. So they're taking proactive steps to make sure that they have strong balance sheets. But that's just another consideration to keep in mind as you think about portfolio growth as we go into the future.

And our last question will come from Tristan Richardson with SunTrust. Your line is open.

Appreciate all the commentary, particularly around the sensitivity in L&S. Just a clarifying question there. Pam, the dollar impact you talked about in L&S, is that across all of the sub-segments of L&S, assuming MPC were to flow at minimums or is that just the pipeline sub-segment where there's the most volumetric exposure?

That is where we have the most volumetric exposure, but we have feathered in the other pieces where we think there is some volume exposure as well. Wherever we have MVCs, that's what we tried to focus on.

This is Mike. I just wanted to add is, what Pam and the team have tried to do is, we generically lump the term MVC across the business and she has given some color on those numbers. But as you can imagine, every individual asset or pipeline is a lot different. It's a whole scorecard of variations. And then you go into Marine, and then you go into terminals, as well as pipeline. So we're trying our best to give as much color as we can. And then Pam and the team have kind of accumulated that all up and rolled it into one number that hopefully will give you the banks of the river as the refining systems at minimum, here's what to expect. As NGL prices move, we've given that guidance, here's what to expect. We've also given some sensitivity around gas, shut-in, et cetera. So, hopefully that answers the question that I know a lot of people have been wondering and we're trying to give you as much color on it as we can.

Really appreciate the complexity involved there. And then I guess just the last follow-up, just around structure. I think the LP is disclosed in the past that the sponsor can reduce or adjust MVCs in certain conditions. I mean I guess just in this current environment, thinking, have any of those conditions been met where the sponsor could sort of unilaterally make adjustments to MVC agreements with the LP. Clearly, the LP and the sponsor are highly aligned, but just in this environment curious about that?

Yes, no, I don't think so. I think that's a little bit of a misnomer in people's minds. I mean I use the football analogy that obviously we're trying to hit the 50 yard line as far as a market price. The MPC people will have one view that says it's skewed to MPLX, the MPLX people have a view that’s skewed to MPC. So I feel very comfortable that we're between the 40 yard lines, hoping our best to hit the 50. So I know that's a risk that some people have questions, but I really don't think that it should get to the discussion that it does get. And then Pam, kind of talked about the contractual obligation and automatic renewals, et cetera, et cetera. So, MPC, obviously is integrated to MPLX via the distribution coming back. So there's a synergy relationship between MPC and MPLX. But I think sometimes people don't understand as much as it is.

And with that, thank you for joining us today and thank you for your interest in MPLX. Should you have additional questions or would you like clarification on topics discussed this morning, members of our team will be available to take your call. Thank you again.

That does conclude today's conference. Thank you again for your participation. You may disconnect at this time.