Welcome to the MPLX Third Quarter 2021 Earnings Call. My name is Ivy, 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 third quarter 2021 earnings conference call. The slides that accompany this call can be found on our website at mplx.com, under the Investor tab. Joining me today on the call are Mike Hennigan, Chairman and CEO; John Quaid, CFO; and other members of the executive team. We invite you to read the Safe Harbor statements and the 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 in our filings with the SEC. With that, I'll turn the call over to Mike.

Thanks, Kristina. Good morning, everyone and thank you for joining our call. Earlier today we reported adjusted EBITDA for the quarter of $1.4 billion and total return of capital of $900 million through $745 million in distributions and $155 million of unit repurchases. Looking at our year-to-date results, a number of factors have aligned to allow us to generate very strong cash flow. We have benefited from lower capital spending, strong NGL prices, and proceeds from asset optimization efforts. These tailwinds, along with solid business performance and cost reduction efforts have combined to result in just over $1 billion of cash flow available for deployment above our current capital spending and distribution requirements. We've returned $465 million of this capital to unitholders through year-to-date unit repurchases. We believe some investors prefer unit repurchases while others prefer cash returns and after several quarters of employing unit repurchases for incremental return of capital, today, we announced an increased third quarter distribution of $1.34 billion. The increased distribution includes a special distribution amount of about $600 million and a 2.5% increase in the partnership's base distribution amount, reflecting our confidence in the business. The special distribution amount is one way to allow all unitholders to immediately recognize the benefit of our strong cash flow this year. We also believe that distributions can be a more tax-efficient way to return capital to unitholders versus unit repurchases. For 2021, we have now announced a total of $2.8 billion of distributions to unitholders on top of $465 million of unit repurchases. Moving to business updates, we're making progress in our portfolio optimization efforts with our announcement this morning that we are pursuing strategic alternatives for our Alaskan logistics and storage operations, which could include a sale. We also advanced our key growth projects in the Permian related to crude, natural gas, and NGL transportation to other basins. The Wink to Webster crude pipeline in which MPLX has a 15% ownership interest continues to play segments in service and we expect this activity to continue through the remainder of the year. Consistent with our focus on projects with lower return risk, this pipeline system has 100% of its contractual capacity committed with long-term minimum volume commitments. Last quarter, we announced the Whistler Natural Gas pipeline in which we have a 38% ownership interest was placed in service and it will continue to ramp up through 2022. This pipeline will provide approximately 2 billion cubic feet per day of incremental natural gas transport capacity to the Gulf Coast markets from the Permian Basin. The Whistler pipeline is also backed by long-term minimum volume commitments and we expect volumes to increase throughout 2022. Finally, the NGL takeaway solution, which will provide 125,000 barrels per day of long-haul NGL service from the Permian to Sweeney, Texas, was placed in service in October. We continue to pursue opportunities to grow our base business, including expansion of our integrated natural gas and NGL value chains in certain strategic regions and opportunities in support of MPC's expansion in liquid renewable fuels. We also continue to evaluate a number of other low carbon energy growth opportunities and are especially focused on those where we can leverage our competitive advantage through technologies that are complementary with our expertise and our asset footprint. For example, MPLX, along with MPC, is among the companies supporting large scale deployment of carbon capture and storage to help decarbonize industrial facilities in the Houston area. These collective efforts could safely capture and store approximately 50 million metric tons of CO2 per year by 2030 and about 100 million metric tons by 2040. Working with our industrial companies and regulators in this energy-rich region is a critical component of ensuring long-term reliable fuel supplies for a sustainable and diverse energy future. Overall, we continue to focus on identifying and efficiently executing high-return projects to drive further growth for MPLX and we expect our growth capital spending to be higher in 2022 than 2021. Shifting to Slide 4, last quarter, we discussed the publication of our sustainability and climate reports that highlight the environmental, social, and governance aspects of our business. Our focus on leading in sustainable energy positions us to deliver strong results in this space from lowering the carbon intensity of our operations and products to improving energy efficiency and conserving natural resources while using innovative technologies to do it. We believe the targets we're setting and our transparency in disclosing how we plan to achieve these targets positions us well for the future. On our website, we have recently published our 2020 sustainability highlights and MPLX is focused on our methane reduction targets through tangible pathways such as implementing robust outdoor monitoring programs, replacing gas-driven pneumatic control valves, replacing compressor rod packing, minimizing emissions from pipeline launchers and receivers, and optimizing maintenance timing. In short, we continue to challenge ourselves to lead in sustainable energy by meeting the needs of today while investing in an energy-diverse future that creates shared value for all of our stakeholders. Now, let me turn the call over to John to discuss our operational and financial results for the quarter.

Thanks, Mike, and good morning, everyone. Slide 5 outlines the third quarter operational and financial performance highlights for our logistics and storage segment. The L&S segment adjusted EBITDA increased by $11 million, comparing the third quarter of 2021 to 2020. Pipeline volumes are up 17% and terminal volumes were up 13% year-over-year as the industry rebounded from the pandemic. The benefits of these higher throughputs were somewhat offset by the effects of lower marine transportation rates. Moving on to our gathering and processing segment, Slide 6 provides its third quarter operational and financial performance highlights. The G&P segment adjusted EBITDA increased by $43 million, comparing the third quarter of 2021 to 2020, largely driven by higher NGL prices. For the third quarter, NGL prices averaged $0.96 per gallon, more than double the $0.45 per gallon average for the third quarter of last year. As a reminder, every $0.05 change in the NGL basket is worth roughly $20 million to our annual results. Overall, gathered volumes are roughly consistent year-over-year, while processing and fractionated volumes were each down 2%. In the Marcellus, gathering volumes were up 5%, process volumes decreased 1%, and fractionated volumes increased 2% relative to the third quarter of last year. Across the basins where we operate, we are seeing different levels of activity in response to current market conditions. In the northeast, despite higher natural gas and NGL prices, producers continue to focus on strengthening their balance sheets and prioritizing free cash flow over volume growth. Additionally, takeaway capacity constraints have continued to limit production. However, we are seeing increased activity and volume growth in the Permian and in the Bakken. Moving to our third quarter financial highlights on Slide 7, total adjusted EBITDA was $1.4 billion, up 4% from the prior year for the reasons Mike discussed earlier. Distributed cash flow was $1.2 billion, an increase of almost 12% from the prior year. We returned $900 million to unitholders with $745 million of distributions paid and $155 million in repurchases of common units held by the public. As of September 30, we had about $500 million remaining available under the current $1 billion repurchase authorization. As Mike discussed today, we declared a quarterly cash distribution of $1.28 per common unit for the third quarter, including a base distribution amount of $0.705 per common unit, and a special distribution amount of $0.575 per common unit. Based on our confidence in the business, we increased the base distribution amount by 2.5% over the second quarter 2021 distribution. The distribution will be paid on November 19, to common unitholders of record as of November 12. The adjusted distribution coverage ratio for the third quarter, excluding the effects of the special distribution amount, was 1.61x. As we stated on our last call, our commitment to lowering our cost structure has resulted in a $300 million structural reduction in our annual operating costs when compared to 2019. Looking forward, we do expect higher project-related expenses in the fourth quarter. Last quarter, we estimated an increase in project-related expenses in the second half of the year of approximately $75 million as compared to our quarterly run rate in the first half of the year. We experienced some of these higher expenses in our L&S segment results in the third quarter and based on the expected timing for completion of certain projects and maintenance work, we currently expect increased costs of up to $40 million to affect fourth quarter results as compared to the third quarter. Lastly, as we approach the end of the year, we are lowering our growth capital spending guidance for 2021 by an additional $150 million, down to $550 million, with expected maintenance capital of about $100 million for the year. Our total capital spending and investments for 2021 is expected to be about $650 million. With our reduced 2021 capital spending forecast, we do anticipate a higher run rate for capital spending in the fourth quarter compared to the first three quarters of the year. Looking forward, we continue to pursue growth opportunities in our core business, as well as opportunities in energy evolution, which is likely to require greater capital spending and investments in 2022 than in 2021. We will not be commenting on next year's planned capital spending on today's call; we will share guidance for 2022 on next quarter's call. Slide 8 provides a summary of key financial and balance sheet information. We ended the quarter with total debt of just under $20 billion and a leverage ratio of 3.7x. During the quarter, we redeemed the $1 billion floating rate senior notes due September 22 with cash and available liquidity including our intercompany loan with MPC. We currently have $1.4 billion outstanding on our intercompany loan agreement. Our intent is to refinance these borrowings sometime in the future, with timing depending on market and other conditions. In closing, given current business conditions and our commitment to strict capital discipline and a low-cost structure, we expect to continue to generate strong cash flow, enhancing our financial flexibility to invest and grow the business while also providing the opportunity for incremental return of capital to unitholders. Now let me turn the call back over to Kristina.

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

Thank you. Our first question is going to come from Brian Reynolds with UBS.

My first question is around the capital allocation thought process. Should we view the special distribution as a faster method of return of capital versus buybacks given ADB limitations and kind of curious where leverage is headed? Given where leverage is headed in 2022, can we see all the above return of capital situation similar to what we have seen in 2021? Thanks.

Thanks, Brian. This is Mike. Let me give you the long-winded answer. Hopefully this will give everybody a little bit more color on why we came out with the return of capital that we did this quarter. So, first of all, at a high level, we still believe that our balance sheet and our commitment to an investment-grade rating is paramount. The way we think of capital allocation is we're going to take care of our assets. So we're going to have sustaining capital as a high priority. We've had a base distribution amount for quite some time here. And I just want to point out that that base distribution is a pretty high payout ratio and we'd never cut it, despite some of the troubles that others have run into. But once we get through that, then we have capital available for deployment. It can be in growth capital. And John talked a little bit about that, buybacks, an additional distribution amount, which we called a special distribution. We could increase the base, which we've also done this quarter. I'll start first with debt; we're very comfortable. We said for many quarters that we're comfortable that we have stable cash flows, and a leverage ratio of around four times works for us. Currently, we're a little below that; we're running around 3.7x. We think the balance sheet is in terrific shape, and we've generated a lot of cash. The way that I'd like you guys to take away is that capital available for deployment is a dynamic decision that we're going to make quarter-to-quarter. And it depends on market conditions, our business needs, and what we see in the current environment. Obviously, we've been through a lot over the last year and a half with the pandemic and coming out of it. But hopefully, the market has seen something that we've been trying to say for a while, that we have stable cash flows, in a business where we're generating cash beyond our distribution and sustaining capital needs, and now beyond our growth capital needs. We have an amount that is available for deployment. Our view is that all unitholders, to your point, Brian, all unitholders would immediately benefit from this special distribution amount as well as us continuing to buy back units. We've continued that pace now for several quarters in a row. So we're doing a little bit of both. And we've also bumped up our base distribution by 2.5% as well. So all of those factors come into play, but I guess the biggest takeaway that I'd like you to think about is we want to be in a position of financial flexibility, which we've achieved. Going forward, it'll be a dynamic decision based on market conditions, business needs, and what we feel at the time is the best deployment for all of our unitholders.

Great, thanks for all that color; really helpful. For my follow-up, was wondering if you could just give some additional color around potential impacts from PPI across the organization from a revenue generation perspective. How can the business see an uplift and does it spread across those segments with L&S and GMP? Thanks.

This is Tim Aydt and thanks for the question. While it's true that there is an increase in the index that would increase revenue on the FERC-regulated assets, I think it's really important to understand that this is not a direct flow-through to the bottom line. The whole purpose of the index is to offset higher costs that we incur during these inflationary periods. So for FERC pipelines, we've historically adjusted rates that are in line with what is allowed by FERC as a means to cover these higher costs. Now, most of our non-FERC regulated pipelines and storage assets also have built-in escalators to help offset some of these inflationary costs. Now, these are not always based on CPI and PPI; sometimes they're flat rate adjustments. So that's a little bit of the background on those, but I would say for reference, only about a third of our logistics and storage EBITDA is generated from FERC-regulated assets. So it's really a mix of a lot of different things—PPI, flat rate adjustments, et cetera.

Thank you. Our next question comes from John Mackay from Goldman Sachs.

I know you're going to get a couple of these follow-ups, but I do need to ask one on the special. Just curious if you can think about the size of the special this quarter. And just to clarify your comments earlier that this is something that we—might move around, but we could still see kind of ratably in the future. So this isn't necessarily a one-off. Thanks.

John, thanks for that question. So, in addition to what I was trying to say to the previous question, it is going to be a dynamic situation; I don't think you should take this as a one-off. That's an important point that you're bringing up. We plan to continue to have that financial flexibility and will ebb and flow a little bit on buybacks, distribution amounts, whether we call it a special distribution or whatever term you want to use. We're also going to be very conscious of what's happening in the business. As we mentioned in our prepared remarks, the capital this year is a little lighter than we would normally think for this business. So we'll give a little bit more guidance next quarter on where our capital expectation is. But at least for this quarter, we're trying to tell you, it's going to be a little higher than where we are this quarter for a lot of reasons. Some of its timing, some of its capital discipline that we've been employing. So I guess the important point that I'm trying to emphasize, and hopefully everybody understands this, is that we're going to continue in a commodity business that has a lot of ups and downs and variabilities, we're going to continue every quarter to evaluate the situation, examine what the business needs are, look at the market conditions, and try and make a determination as to what is the best return of capital. I should add that you've heard me say this in the past; I'm a huge believer that there's two parts to this business: there's a return on capital and we very much believe in growing our earnings and this is a growth vehicle for us. So that's an area of emphasis that I don't want to get lost in this whole return of capital. But both return on and return of capital are very important to us, and we're trying to maximize both impacts. So when it comes to the return of capital, we're going to look at our base, we're going to look at whether that should get an incremental adjustment, which we did this quarter. We'll continue to evaluate that. We'll continue to evaluate how much cash flow that we're generating. As John mentioned in his prepared remarks, it's been a strong year from a lot of perspectives. So from that standpoint, we've generated over $1 billion of cash flow through three quarters. Obviously, without guidance to the fourth, we expect to have a little more on top of that as we progress. It's been a very strong cash flow year. We've returned $455 million in unit repurchases. We're going to continue to engage in that program as well. But we thought it was appropriate to have an immediate return to the unitholders as well.

I just wanted to emphasize some of Mike's comments there as well. There were some number of items that kind of aligned for us this year that, again, are things we're going to have to take a look and understand what those might look like in the future. So certainly, a broader approach to kind of incremental return of capital when it's available. But again, that'll be dependent on what the market conditions are at the time, what kind of cash flow we're generating, et cetera. So certainly something we'll continue to look at, but there may be some quarters where we're not talking about having the same conversation and other quarters where we are.

Okay. That's great. Thank you, Mike. My follow-up is, kind of makes sense with 2022, CapEx essentially being higher than 2021, just given how far 2021 has come down? Would it be a fair assumption to say that, given you're not taking this cash to kind of start prefunding 2022 CapEx, that while it might be higher, it's not going to be a dramatically larger number? I know you're not giving specific guidance here, but just trying to think relative basis and how to think about funding for it?

Yes. No, John, you might have answered it with your last comment. Right. We'll have guidance for next year on next quarter's call. But certainly, trying to make sure you guys understand the number is going to be higher next year. If you kind of take the guidance we gave for this year—$550 million on growth and $100 million for maintenance—that applies about $200 to $210 million of growth in the fourth quarter and about $50 million of maintenance. Again, some of that's driven by the timing of projects as we roll into next year. So, certainly higher, but not—we'll share those numbers on next quarter's call because part of what happened to us this year, in addition to really taking a much stricter look around capital discipline, we would have had some projects that were just deferred as we were coming out of COVID that kind of pushed things later in the year and into next year. So again, looking for higher capital next year, and we'll talk about that on next quarter's call.

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

Thanks. Good morning, everyone. I want to talk a little about the GMP business. Wondering if you're hearing anything in the northeast from your producers? I know you mentioned capital being constrained from a pipeline takeaway perspective, do you think that the dynamic will change at all when Mountain Valley comes into service? And there's a little more takeaway in the region with that change? The drilling activity or do you think the producers are just going to continue to return cash to shareholders?

Michael, this is Greg Floerke. Yes, I think that the producers have been in a free cash flow positive mode and maintenance drilling mode. There have been constraints as we operated high levels of utilization, both in processing and in terms of takeaway pipe. Certainly, as more residue gas pipeline takeaway capacity becomes available, there is that opportunity to increase drilling and volume. The processing capacity is fairly tight, but there is still potential there for growth. The other thing that I would mention is that the cracker in Northern Pennsylvania is scheduled to come online mid-next year, which will drive increased recovery of ethane from gas that also will free up capacity in the residue lines. We will increase utilization of our deethanizer plant as well. So those things clearly could drive production, gas prices and NGL prices are obviously supportive of more rich gas production. However, that's open to what the producers decide to do.

Thanks. Appreciate that. Second question. Staying on GMP, I know you've had sort of an ongoing desire to divest some of your maybe non-core GMP assets. I'm wondering in light of commodities moving much higher in the last few months, if you're seeing any change in interest there. Thanks.

Michael, we still have an overall strategic plan to consider where we think core assets are versus not. I've said in many calls that the bid-ask has been too wide for us to consider. I would tell you that that bid-ask is narrowing. But at the same time, we are very comfortable still with the assets that we have in place; we don't have anything, I use the term on the front burner. However, if we maintain this type of activity and the commodity prices stay where they are, and there's a little bit of a renewed interest, then maybe there's a transaction that could occur at some point. Nothing right now on the horizon. We're interested, but we're also very happy with where our assets are. And my philosophy has been, all of our assets need to generate free cash. We continue to be in that mode throughout all of the basins that we're in. Overall, we're still happy with the situation we have, but we'd like to optimize the portfolio for the long-term if the situation arises. But it's not something that we have to do.

Thank you. Our next question comes from Theresa Chen. Please go ahead.

I wanted to ask about the cost cadence, actually understanding that in the fourth quarter, we're going to see another quarter-over-quarter bump in expenses. Just going to the quarterly run rate in 2022, should we expect some of that to normalize? Or how should we think about that?

Good morning, Theresa. It’s John. Yes, that's definitely similar to some of our maintenance capital; it can be a little bit lumpy, and how that kind of happens over the year, which is why we were trying to flag that earlier in the year as well. So definitely a higher level in Q4, but that wouldn't imply that we'd be on that run rate going forward.

Understood. And related to the announcement of seeking strategic alternatives for Kenai, both in the primary and the logistics assets at the partnership, can you remind us how much EBITDA contribution that logistics assets actually generate for MPLX currently?

Actually, Theresa, it's not a number we've disclosed.

Thank you. Our next question comes from Keith Stanley from Wolfe Research.

Hi, good morning. First, just on the Permian strategy, are there next steps that you're looking at now that Whistler, Wink to Webster, and the NGL project are complete? I guess are there other capabilities that are important for the company to add at this point? Or do you feel like you're in a pretty good place in the Permian?

So, this is Tim Aydt. I'll take that one. We continue to be really bullish on natural gas and the NGL growth. I do believe that we're well-positioned in the Permian in particular to take advantage of the investments we've made thus far. When you look at our Agua Blanca system, the Waha gas storage, Whistler, and of course, the NGL solution, I think these are all really solid platforms for growth and really to expand off of. I think you can look further down the value chain; it could be as far as exports and other stuff that may provide some additional opportunities. So again, I'm pretty bullish on natural gas and NGLs in particular. But then there's also energy evolution ideas as well that could provide growth opportunities.

Okay, thanks. And then, this may be a little bit of a silly question, but the buyback pace has been just almost exceptionally programmatic with the $155 million a quarter for three quarters in a row now. Is it fair to think that that's sort of your target at this point, given the stock at these levels? And if the business is steady? And is there any technical reason you've been kind of shooting for around that level for three quarters?

Keith, it's Mike. Now it's more of a coincidence. To be honest with you, we were on that pace, and we were going to change the number just so it wouldn't be the exact same number. But pretty much, we had said to ourselves, we're going to deploy about this much in that arena. We obviously did not do distributions for a couple of quarters, and now we decided to pull that trigger. Overall, like I said, it's dynamic; we're thinking about it quarter-to-quarter, and we're obviously also looking a little into the future. So that the fact that it turned out to be the exact same number is more coincidence than a design to be exactly that.

Thank you. I am showing no more questions. Thank you.

Great. Well, thank you for joining us. And thank you for your interest in MPLX. Should you have additional questions or would you like clarification on any of the topics discussed this morning, members of our Investor Relations team will be available to take your calls. Thank you, everybody.

Thank you all for participating in today's conference. You may disconnect your line and enjoy the rest of your day.