Mplx LP Q4 FY2022 Earnings Call

Welcome to the MPLX Fourth Quarter 2022 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 fourth quarter 2022 earnings conference call. The slides that accompany this call can be found on our website at mplx.com, under the Investor tab. Joining me on the call today 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 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. And with that, I'll turn the call over to Mike.

Thanks, Kristina. Good morning. Thank you for joining our call. First off, I want to recognize a new Director on the MPLX Board. In November, Christy Breves, who recently served as CFO for U.S. Steel, was appointed as a new Independent Director. 2022 was a strong year as we successfully executed on all of our strategic priorities. Full year adjusted EBITDA was $5.8 billion and DCF was $5 billion. Strong operational performance and customer demand drove record annual pipeline throughputs and increasing Gathering and Processing and fractionation throughputs with each quarter of the year. We also realized EBITDA growth from recent capital investments and remain focused on cost management. Overall, our efforts resulted in a 4% year-over-year adjusted EBITDA and DCF growth. In line with our commitment to return capital, for the full year, MPLX returned over $3.5 billion of capital back to unitholders through our distribution and unit repurchases. We also made progress towards our goal of leading in sustainable energy through our methane reduction program and with the receipt of EPA's ENERGY STAR award for energy efficiency improvements at several terminals. Today, we announced our capital expenditure outlook for 2023 of $950 million. Our plan includes approximately $800 million of growth capital and $150 million of maintenance capital. Our growth capital plan is anchored in the Marcellus, Permian, and Bakken basins. In addition to new gas processing plants in the Marcellus and Permian, the remainder of our capital plan is mostly focused on other investments targeted at expansion or debottlenecking of existing assets to meet customer demand. While our capital outlook is primarily focused on our current L&S and G&P footprint, we will continue to evaluate low-carbon opportunities where we can leverage technologies that are complementary with our asset footprint and expertise. Moving to our capital allocation framework. First, maintenance capital. We remain steadfast in our commitment to safely operate our assets, protect the health and safety of our employees, and support the communities in which we operate. Second, we remain focused on delivering a secure distribution. Third, after these commitments are met, we will invest to grow while maintaining strict capital discipline. And fourth, we also intend to return excess capital to unitholders. As I've said in the past, we believe this is both a return on and a return of capital business. Last November, based on the strength and growth of our cash flows, we increased our distribution by 10% to an annual rate of $3.10 per unit while maintaining a strong distribution coverage ratio of 1.6x. In 2023, we would expect to be similarly focused on our distribution as our primary tool to return capital to unitholders. We are optimistic about our opportunities in 2023 and remain focused on executing the strategic priorities of strict capital discipline, fostering a low-cost culture, optimizing our asset portfolio, which are foundational to the growth of MPLX's cash flows. Now let me turn the call over to John to discuss our operational and financial results for the quarter.

Thanks, Mike. Slide 6 outlines the fourth quarter operational and financial performance highlights for our Logistics and Storage segment. L&S segment adjusted EBITDA increased $45 million when compared to fourth quarter 2021. The increased results were primarily driven by higher pipeline tariffs and contributions from pipeline equity affiliates, partially offset by higher maintenance project-related expenses in the quarter. Pipeline volumes were flat year-over-year, primarily due to the impacts associated with Marathon's refinery turnarounds in both quarters. Terminal volumes were up 4%. Moving to our Gathering and Processing segment on Slide 7, G&P segment adjusted EBITDA decreased $36 million compared to fourth quarter 2021, as the benefits of higher volumes were more than offset by lower natural gas liquids prices, which averaged $0.78 per gallon for the quarter as compared to $1.05 in the fourth quarter of 2021. In total for the quarter, gathered volumes were up 14% year-over-year due to increased production in the Utica and our Southwest region, which includes our Permian operations. Processing volumes were up 1% year-over-year, primarily from higher volumes in the Southwest, driven by increased customer demand and our investments in processing capacity in the Permian. In the Marcellus, while Gathering and Processing volumes were slightly lower year-over-year, we did see sequential increases for gathering, processing, and fractionation volumes in the basin. These activity levels were in line with our expectations for increased producer activity in the back half of the year. Moving to our fourth quarter financial highlights on Slide 8, total adjusted EBITDA of $1.5 billion was roughly flat versus the same period in the prior year, while distributable cash flow of $1.3 billion increased 5%. Results in the quarter were impacted by a $23 million special compensation award provided to our employees in recognition of their efforts. We do not anticipate that this expense will structurally impact future costs. In the fourth quarter, we returned $975 million to unitholders through approximately $800 million in distributions and $175 million of repurchases of common units held by the public. MPLX ended the year with nearly $850 million remaining available under its unit repurchase authorizations. Last week, MPLX declared a fourth quarter distribution of $0.775 per unit, resulting in a distribution coverage ratio of 1.6x for the fourth quarter. MPLX ended the year with total debt of around $20 billion and a debt to EBITDA ratio of 3.5x, comfortably below our target of approximately 4x. While our absolute level of debt has remained relatively constant, our leverage has decreased due to the growth in our business. And at these leverage levels, we do not see the need to reduce our absolute level of debt. Earlier today, we announced our intent to redeem the par value of the $600 million of outstanding Series B preferred units in mid-February. Subject to market conditions, we expect to refinance these preferred units into long-term debt. In closing, we expect our solid operating performance and growth of our cash flows will enable us to continue to invest in and grow the business while also supporting the return of capital to MPLX 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 re-prompt for additional questions as time permits. With that, Sheila, we're ready for questions today.

Thank you. We will now begin the question-and-answer session. Our first question will come from Brian Reynolds with UBS. Your line is open.

Hi. Good morning, everyone. Perhaps to start off on capital allocation, we saw continued commitments, unit repurchases and the redemption announcement on the preferreds. With the preferred redemption announcement and some of the debt maturities that are coming up in '23 and '24, was just curious if you could opine and discuss on how you expect any change in return of cash via special distribution or buybacks going forward, like we've seen in the past just given the upcoming debt maturities and the path that you expect to refinance as well? Thanks.

Hi, Brian. Good morning. Thanks for the question. Let's break that down into a couple of parts. First, we have notified the Series B holders of our plan to redeem those in February. Additionally, we have 1 billion of senior notes maturing in July. Given our leverage and current situation, we will likely look to refinance both into long-term debt, depending on market conditions. Regarding our return to capital, we've received a variety of feedback from investors; some prefer distributions while others favor unit repurchases. We have structured our approach around that feedback. Lately, it seems we are leaning more towards distributions, as Mike mentioned, and we increased the distribution by 10% effective with the third-quarter payment, maintaining strong coverage at 1.6x and a solid balance sheet at 3.5x leverage. This will be an area of focus for us in 2023. We also plan to be more opportunistic with unit repurchases. Since starting the program, we've repurchased just over 1 billion at around $29 a unit, with about $176 million in the fourth quarter at approximately $31.75. So, while it will remain part of our strategy, it may be executed more opportunistically. Mike, would you like to add anything?

Yes, Brian, let me just add a little bit to it. Just on a simple basis, we're generating about $6 billion of EBITDA, about $5 billion of distributable cash flow after that. We've been spending roughly around $1 billion. So we have about $4 billion of free cash flow and distributing $3 billion through our base distribution, which has been leaving about $1 billion of cash after all that. So I think the key is we have a lot of flexibility. And as John said, we'll try and be opportunistic on the buyback side. We'll try and continue to show the market that we continue to grow this partnership. So you'll see us continue to increase distributions over time. So we'll talk about that at some point. But I think we're in a real good position from a financial standpoint, strong balance sheet, excess cash flow, looking for opportunities to deploy but staying strict on returns. And overall, hopefully, that's where the market wants us to be.

Great. Thanks. Really appreciate all that extra color. And maybe just to quickly touch on the operational side of the house, MPC refinery run siding into '23. It seems to be faring much better than peers. And curious if management could just opine on expectations for '23 products, volumes versus '22 and if you're seeing any nuances by products that could perhaps support resiliency and product volumes in '23 after just seeing really strong refinery runs last year? Thanks.

It's a good question, Brian. I'm going to let Shawn give you a little more color. But I will say, at the MPC side of the house, we had a really strong year. Safe, reliable operations is key to our business on that side. We ran 96% utilization. If you've followed some of the activity during the year, we had deferred some turnaround activity to the back half of the year. But overall, it was a very strong utilization. So I'll let Shawn comment a little bit on the L&S side.

Hi, Brian. This is Shawn. As Mike said, we had a strong year in '22. We had several records across our assets on the terminal pipeline side. And in '23, we're continuing to see another strong year. And we'll be matching the refinery rates that MPC and others habits. And then also we're excited about the growth out of the Permian and some of the pipelines coming out of the Permian. So, again, just like '22, we're excited to see again another solid year in '23 as far as volumes and growth.

Great. I'll leave it there. Enjoy the rest of your day. Thanks.

Thanks, Brian.

Thanks, Brian.

Thank you. Our next question will come from John Mackay with Goldman Sachs. Your line is open.

Hi. Good morning, everyone. Thank you for your time. I would like to discuss the capital expenditure guidance. You mentioned some of the components involved. Could you provide more details about how the guidance is allocated, particularly regarding the major projects you mentioned, such as the upcoming Permian processing plants? Additionally, how much is being directed towards smaller one-off projects and what we refer to as emerging opportunities in transmission? Any breakdown or year-over-year trends in that area would be appreciated. Thank you.

Hi John, good morning. I'll begin, then John can add more. Generally, most of our capital program focuses on smaller expansion and bottleneck projects. While people often prefer larger, more visible projects, we actually achieve better returns through growth in both our gathering and processing sectors. As our production rises, we have a substantial system where we can incrementally expand. These smaller projects tend to yield higher returns. We will still enhance our platform, as you noted, with a couple of new processing plants that will boost our base, allowing for additional gathering to support that growth. However, the main narrative of our growth is quite significant, as we are around $6 billion in EBITDA. Our goal is to achieve mid-single-digit growth in our system while maintaining discipline to focus on high-return projects that will increase EBITDA. Additionally, we continue to explore opportunities in low-carbon initiatives, although there's been limited progress so far. We are engaged in CCUS projects and other future initiatives, but these will not significantly impact our 2023 earnings. I believe there will be more opportunities as technology progresses. For now, our focus remains on strict capital discipline to ensure we achieve high returns that positively affect our bottom line consistently, enabling continued growth of the partnership and substantial returns for our investors.

Hi, John. It's Shawn. Just a couple of things to add to Mike's comments. So maybe one is an example of kind of an expansion in debottleneck. The other item we're looking at in the Marcellus is we've got some space on our existing processing plants. So we've got an opportunity to look at those gathering systems and invest the monies and fill up some space on plants we have sitting there and ready to go. And then also remember there's a number of those projects that are listed on the slide there, mainly around our Permian opportunities, where those projects given shipper support, et cetera, we've been financing those at the JV level. So there's a good amount of capital that's going to drive EBITDA growth that's not in our capital outlook just because that's getting financed down at the joint venture. So just wanted to highlight that as well.

That's helpful. I appreciate all the stuff. Maybe turning to the quarter, two things. John, I think you mentioned some higher expenses maybe on the L&S side in the quarter. And then you also mentioned the $23 million special comp award. Is there any kind of total number there that you might be able to give us for the quarter that maybe won't be there in a run rate if we're trying to look at 2023 going forward? Is it as simple as kind of adding back $23 million or maybe $25 million? And that's kind of a more representative run rate of the base business.

Yes. John. Thanks for the question. So a couple of pieces there. The special compensation award by its kind of term we're using there, that's a one-time item we decided to do here in the quarter and that was the expense for the entire items. So I don't know that we anticipate having another award in the first quarter, right? That was really our effort to look at our employees, kind of non-executive level employees' efforts in achieving our 2022 results and wanting to recognize that. So that's a little unique. The other piece gets around our frequent discussion around kind of project maintenance expenses. Certainly, we tend to be a little more back half loaded, sometimes that can move with MPC's turnaround schedules, et cetera. So that number year-over-year I think we see being roughly the same amount of expenses as we continue to focus on cost management. But it will move quarter-to-quarter, John, but I don't know that today we're going to provide that number. Just a flag for you, as in the past, first quarter does tend to be our lowest spend quarter around that activity just due to weather and other items. So hopefully, that's helpful.

Great. I appreciate it. Thank you very much.

You're welcome.

Our next question comes from Keith Stanley with Wolfe Research. Your line is open.

Hi. Good morning. I wanted to start by asking if you have any updated insights from producers regarding unplanned activity in the Marcellus and Utica regions, especially considering the rapid decline in gas prices we've experienced and its potential impact on your expectations.

Keith, that's a good question. I'm going to let Greg take that one.

Thanks, Keith. Really the 2022 prices, whether it be crude NGL or gas, were very supportive of increased drilling activity by producers and this is not just in the Permian Delaware or even the Marcellus. It was across all basins. We've seen increased activity, so increased drilling in 2022 and some completions, and then completions into '23 mean higher volume outlook for '23. Certainly, there has been price volatility. We've seen prices over $10 per MMBtu in the summer, which, at a high and now we're kind of back to more of a normal level. But in the Permian, in places like the Bakken, even the condensate when on the Utica is really crude price driven. And the drilling is related to crude price, and we see the benefits of associated gas and NGLs that come off of that. So short-term price swings really, we don't expect right now will impact the volume as much because a lot of that activity was set up by drilling activity in 2022.

Got it. Thanks. Second question, I just wanted to follow up on the distribution. So you had the 10% hike last quarter. Growth in the distribution I think was pretty small in the couple of years before that. How should investors think about distribution growth over the next several years for the company? Does it tie in your head to overall growth and cash flows of the business? Do you see some excess cushion and excess cash flow, so the distribution could grow potentially faster? Just how are you thinking about that over the next few years?

Hi, Keith. It's John. I'll start and then I'm sure Michael will have some comments as well. Last quarter, our confidence in the strength of our cash flows led us to increase the distribution by 10%. Our coverage ratio remains strong at 1.6x. We’ve continued to grow the partnership and have been focused on managing costs. Though we may have slowed the distribution for a few years, we've built up our coverage. As Mike mentioned, we are targeting mid-single-digit growth, and the distribution should align with that trajectory. We have likely created some capacity to consider how we might adjust the distribution later this year.

I'm going to reiterate something I mentioned earlier: we must consider the law of large numbers. Currently, we have approximately $6 billion in EBITDA. If we achieve mid-single-digit growth, that would mean an additional $300 million in EBITDA, giving us more financial flexibility for actions like increasing our base distribution or conducting buybacks. The advantage of our scale is that even modest growth can significantly enhance our cash flow, which currently stands at around $3 billion. This demonstrates our ability to operate with increased flexibility. It's worth noting that many in our industry took a pause during COVID, yet we still managed to grow earnings despite the challenges faced in refining due to reduced demand. We need to acknowledge our current financial status and our growth potential. By examining the straightforward numbers, we can better understand our financial flexibility. I'm emphasizing that this is a favorable situation for us. We aim to reward investors efficiently to achieve a good total return. We’ve always advocated for a comprehensive approach. As John pointed out, we intensified our focus on distribution last year, aligning with your observations and John's insights. We have strong coverage and a clear path for growth, putting us in an excellent position to continue advancing our partnership.

Thank you.

You're welcome.

Our next question will come from Theresa Chen with Barclays. Your line is open.

Good morning. Mike, I'd love to get some of your thoughts on the potential low carbon expansion opportunities and generally growth beyond what you have in the slate right now? As far as your ability and willingness to invest in the low carbon renewable space, are there hurdles at this point a matter of technology, financial hurdles? And given that MPC has made significant progress in its renewable investments, is there volition down the line to do something together with a C-Corp?

Yes, Theresa, at a high level, most of our low carbon activities in the short term are focused on the MPC side. We'll discuss this in more detail during the 11 o'clock call. There's currently less emphasis on the MPLX side. However, we believe that technology will continue to progress. One well-known example is carbon capture and sequestration, which presents a significant opportunity for MPLX. We're involved in several projects, but they are not set to start in 2023 and won't affect this year's earnings. On the MPC side, as you're aware, we have a couple of renewable diesel plants, and we expect growth in that area. To get more insight on the low carbon developments at MPC, I encourage you to tune into that call for further details. As for MPLX, we anticipate progress, but it's not quite ready for full implementation at this time.

And then, Theresa, it’s John. I might just jump in real quick. Just as a reminder, if you think about like the Martinez renewable fuels facility project that MPC is doing, those logistics assets around that were and remain MPLX assets. And we don't have a lot of investments to move around the different liquids. So to some degree, it maybe extends the life of the assets we have with minimal investments around those facilities.

Theresa, it’s Mike again. The one last thing to your question on what's limiting technology or whatever, in a lot of the areas, the returns that we can get on those opportunities are not quite meeting what we would like to implement. But I think over time, the technologies will evolve and that will be an area for us to invest. As we've been talking throughout the call, we have a lot of financial flexibility on this side of the house. John mentioned, we're 3.5x on the balance sheet, we're generating $1 billion a year of excess cash beyond growing distribution. So we have the financial flexibility. We are ready and able, but we are going to be strict on returns. So part of what has held us back from some of what I'll call the splashier discussions that the returns just are not at a level that we think is investable at this point. But we think they're going to get there. It's just a matter of time.

Thank you for the thorough response and I agree, John, that we definitely look forward to that 2026 re-contracting on the Martinez logistics assets. Maybe turning to the Northeast for a second. Following the startup and ramp up of your deethanizer, would love to get your take on how that facility is doing to support feedstock delivery to the Monaca cracker as well as your general outlook for economics in the Northeast, given the recent price volatility?

Theresa, this is Greg. I'll address that question on several levels. We have over 300,000 barrels a day of deethanization capacity in our fleet at MPLX. Our fleet is unique because our deethanizers are spread across all of our processing plants, allowing us to reject or recover ethane based on customer needs and definitely by plant. All our plants are connected by a purity ethane line, which enables us to deliver to Mariner East, Marina West, Utopia, ATEX, and the Shell Falcon pipeline for Monaca. The Smithburg deethanizer, the newest addition to our fleet, contributes an additional 40,000 barrels a day of purity ethane production capability. This plant is operational and performing well, ramping up alongside the rest of our fleet to supply Monaca and various locations across the Gulf Coast, East Coast, and even Canadian markets. Regarding the economics, the fractionation spread between ethane and natural gas, whether it is rejected or not, has shown that natural gas prices have recently declined at a slightly higher rate than ethane prices. This has improved the economics for recovery. Ultimately, it is up to the producer to decide whether we recover more or reject. We have the capacity for both, and in the Northeast, most of the recovery is linked to commitments made by producers for those takeaway pipelines and the Shell plant. We are continuing to ramp up as we increase our utilization in that area.

Thank you very much.

You're welcome, Theresa.

Thank you. Our next question comes from Jeremy Tonet with JPMorgan. Your line is open.

Hi. Good morning.

Hi, Jeremy.

Just want to shift over to the Permian a little bit if I could, as it relates to natural gas egress. And just wondering any high-level thoughts you might be willing to share as far as takeaway tightness. We've seen Waha touch negative prices recently, not too long ago, and was just curious I guess that the Whistler expansion with Matterhorn, is there any ability to kind of start partial service ahead of the dates that you've said, or just trying to get a feel for how you see Permian egress tightness unfolding and what MPLX could do there?

Hi, Jeremy. This is Shawn. I’ll address gas takeaway from the Permian. We have the Whistler Pipeline, and as we mentioned last quarter, we are pleased with the increase in volumes, indicating that gas takeaway is necessary. The volume and commitments remain strong, and we expect this to continue into 2023. The half B expansion will come online in the third quarter of 2023 for Whistler, and we are meeting our expectations for committed volume from the Permian. Additionally, we have a small stake in Matterhorn, which aligns well with the needs of our producers and customers. As Greg mentioned earlier, there will be fluctuations in natural gas prices, but there is a strong demand for gas takeaway from the Permian.

Got it. Thanks for that. And I was just curious, I guess, as it relates to weather, during the quarter there was some freezing conditions across the country. Wondering if that impacted your operations at all, if there's any weather headwinds that you would be willing to quantify for us if they did materialize?

Hi, Jeremy. It's John. Thanks for the question. I'll start and Greg and Shawn can chime in if they want to as well on the ops. So across our platform, in the fourth quarter, we probably had mostly lost profit opportunity as some of our producers mainly on the G&P side, obviously, when it gets that cold, they run into some issues. So that reduced our operations there for 10 to 14 days, give or take, different across the basins in the fourth quarter. That probably was a lost opportunity of somewhere around $10 million in the quarter. And as we look to this quarter, Q1 '23, partly impacts on MPC's operations, partly remember I'm talking adjusted EBITDA. And when we think about our joint ventures on the G&P side, that really is distributions. So there's part of the effect in Q4 that shows up as lower distributions in Q1 as well. So probably $10 million of lost opportunity in both Q4 and Q1.

Got it. That's helpful. Thank you.

You're welcome.

Our next question will come from Neal Dingmann with Truist Securities. Your line is open.

Good morning, everyone. My question is regarding your Marcellus Gas and Processing, particularly the number of Exploration and Production companies. I haven't heard much from them about any plans for changes in activity, but I did hear from a service provider last week that indicated there may be a slowdown in fracking activity for the next few months or possibly longer in the Appalachian region. I would love to hear your overall thoughts on the situation in that area for the rest of the year, especially since I noticed on Slide 7 that the numbers were slightly down compared to last year, but not significantly.

Neal, this is Greg. Currently, we are maintaining close communication with our producer customers and monitoring the drilling and completion rates of well pads over time. Factors such as rig availability, weather conditions, and pricing are influential, leading to potential changes in our forecasts. However, much of the projected volume activity for 2023 is grounded in the drilling activity from 2022 and some ongoing completion work. While there is a possibility for delays in well pads, we remain optimistic about volume this year.

Yes, I agree. Go ahead, Mike. Sorry.

Yes. Let me just add, even outside of the Marcellus, I think everybody realizes now there's a structural change in gas from a lot of perspective. So in some of the areas that had not seen a lot of activity, as Greg mentioned earlier, in '22, you're starting to see rigs in other basins outside of the Marcellus that haven't had a lot of activity. So I think overall, people are recognizing a structural change in gas now. Very short term, it's been a little warm relative to expectation coming into the winter. But if you pull back up to a higher level of structural change, more activity, rigs being used in basins that there has not been activity for a while, I think shows that there's a change in gas potential going forward.

Yes, well said, Mike. I just want to clarify something about the gathering. It seems you're experiencing a significant increase in gathering on the non-Marcellus side. Shawn, could you remind me of the capacity? I believe there's still some available in the Permian. I'm just trying to get a clearer picture of what the available capacity is on the gathering side there.

In terms of the Permian Delaware, the capacity, we basically build out and connect new wells and add compression as we need it to fill the processing capacity that we have.

Neal, it's John. Specifically in the Permian, if that's what you're asking about, right, we've got our five plants, we're building our sixth. They're each about 200 million a day. So that's the size and scale of that operation, which, in our numbers, it's part of the Southwest region that we show. We're at a B heading to 1.2B. And we match the gathering which I believe you specifically asked for to that capacity.

That's right. Okay. Thanks, guys. Great details.

Thank you. Our next question will come from Spiro Dounis with Citi. Your line is open.

Thanks, operator. Good morning, team. Wanted to go back and follow up on one of Brian's questions just as we think about refinery run rates for '23. And if we zoom out a bit and just look at the industry as a whole, I believe it's supposed to be kind of a heavier refinery maintenance year this year. So curious how you're all thinking about the impact to your system overall, whether or not that ships flows on the export side or internally, just curious how you're thinking about the net benefit or negative there?

Spiro, it's Mike. I'll begin. MPC experienced a turnaround year that was heavily weighted towards the backend in 2022. This year, we're looking at a turnaround that will be more frontend weighted. Despite the turnaround activities necessary for safe and reliable operations, we've managed to maintain high utilization rates at MPC. It's going to be a challenging year for us, particularly considering the second half of last year and the first half of this year on the MPC side. Last year, we achieved a 96% utilization rate. We anticipate a strong performance this year, starting with increased activity in the first quarter. Even though we set a record last year on the L&S side, we are still expecting a solid year in 2023.

Got it. That's helpful. Thanks, Mike. For my second question, I'm considering capital expenditures moving forward. You have effectively utilized joint ventures over the past few years, and I'm curious to hear your thoughts on that strategy as you reflect on it. Would you say you are satisfied with it? Looking ahead, is using joint ventures a strategy you intend to continue for larger multiyear projects? Additionally, do you view these joint ventures as a means to own more of your current assets or potentially acquire some of these joint venture partners over time?

Hi, Spiro. It's John. I'll start and then let Mike chime in. I think certainly, to your first point, we definitely have been very pleased with our investments in the Permian. I don't know that we started those from a financial aspect as well as other considerations, right, when you're entering a joint venture relationship, sharing of risks, commercial opportunity, et cetera. So I think it depends on the situation because as you know, we certainly have a strong balance sheet and generating a good bit of cash. So those have worked really well for us. I think where there's opportunities that have both commercial, operational, and perhaps financial reasons, we can look at JV opportunities. But given the strength of the balance sheet, I don't know that financially we would need to leverage them in that regard.

Yes. Spiro, I was just going to add to what John said. It's pretty specific to the opportunity and to the desire of all the partners. We try and be a good partner, as John said, in a couple of these instances, we had the financial capability to finance it ourselves. When other members want to do it at the project level and we can live with that, we're okay with it. We're not opposed to it. And if it makes for a better partnership, that's fine for us. But I would tell you, it's specific to the project itself and who the partners are. But John mentioned earlier, when we quote our capital, that's the capital that we're typically doing on our side of the house, and then there is additional capital that comes from those projects that gets financed at that project level. So it's hard to answer your question other than it's specific to John's point. We have been happy with them. We've had good partners. We're usually aligned. The goal, obviously, in any JV is already aligned in the intent of the project, et cetera. And we've been fortunate to have good alignment with our partners. And where we finance it at the project level, we've been okay with that as well.

Helpful as always. Thanks for the time, guys.

And our last question will come from Neel Mitra with Bank of America. Your line is open.

Hi. Good morning. I wanted to touch on the MPC Galveston Bay upgrades. I was wondering if that would have any impact on the L&S segment once that's completed?

I'll start and I'll let Shawn jump in. We're probably going to talk about that in a lot more specifics on the MPC call. But just in general, that project is pretty strategic for us. It's a lot more crude processing and upgrading. So as you know, obviously down on Galveston Bay, we have the flexibility to bring barrels in via pipeline and/or water. So depending on the specifics of where the best crude opportunity is, it could hit our system or it could come waterborne on the crude side. But obviously, the outcome of the products, that tends to move on some other pipes as well. So it's much more of an MPC impacting project than it is an MPLX project.

Okay, got it. Thank you. And then my second question on the G&P side, can you sum up how you look at the Permian portfolio? You have some good gathering and processing, natural gas takeaway with Whistler and a little bit with Matterhorn. How far downstream do you want to go? Are you thinking about NGL pipelines? And then do you feel like you need more scale on the G&P side to feed some of the downstream assets? I'm just wondering how you envision this portfolio looking like in the intermediate to longer term.

Yes. At a high level, yes, we would like to continue to expand our footprint there. But I'll let Greg and Shawn touch or Dave.

Neel, this is Dave. I think as you look at it, one of our strategies is to leverage the existing infrastructure and assets we have in place from gathering to processing in the long-haul pipelines down to the export opportunities or the other infrastructure out there. So I think as you see, whether it be organic or inorganic growth opportunities, it's really going to keep that in the back of our mind. Again, all anchored by strict capital discipline and ensuring that we get the acceptable returns.

And if I could just ask a follow-up to that. Are you seeing some synergies between your gathering and processing and possibly being able to win contracts by having the Whistler capacity there, given the lack of natural gas takeaway and possibly bundling contracts between pipelines and G&P?

Yes, they're definitely synergies. On the G&P side, for example, we're building and operating some of the crude gathering assets as we tie in new wells and put new facilities in. There's associated gas that comes with that. So we connect the gas wells and bring the gas, and G&P operates that gathering system as well, the gas NOL, and then we operate the processing plants. But we're reliant then on handing off the residue gas to Whistler to bundle the NGLs. And then, of course, the crude coming from the pads is going to L&S operated downstream pipelines as well. So we operate seamlessly there.

Neel, it's John. Definitely right to the point of your question, those producer customers want that product to the coast, and that's the solution we've built and we'll continue to look to think about how we can move further downstream across that value chain.

It's Mike. I'll just add. We try or make every effort to be a full service provider. We will gather crude, we will gather gas. We will process the gas. We will transport the crude. Our intent is to be a partner to the producers or whoever needs to make infrastructure work for them or logistics work for them. So we try to be a full service provider and get into conversations, like you said on contracts or discussions as to what are their needs and how can we help them? And hopefully, they turn into win-win situations.

Great. I appreciate all the color. Thank you very much.

You're welcome.

All right. With that, thank you guys for joining us today and thank you for your interest in MPLX. Should you have additional questions or if you'd like clarification on any of the topics we discussed this morning, members of our IR team will be available to take your call, so please just reach out. Thank you, everybody.

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