Earnings Call Transcript - MPLX Q1 2021

Operator, Operator

Welcome to the MPLX First Quarter 2021 Earnings Call. My name is Amber, and I will be your operator for today's call. At this time, all participants are in 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.

Kristina Kazarian, Director of Investor Relations

Thanks so much. Good morning and welcome to the MPLX first 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 on the call today are Mike Hennigan, Chairman, President and CEO; Pam Beall, 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.

Mike Hennigan, Chairman, President, and CEO

Thanks, Kristina. Good morning and thank you for joining our call. Earlier today, we reported adjusted EBITDA for the first quarter of 2021 of $1.4 billion. Despite lingering challenges from the COVID-19 pandemic and headwinds in the business environment, we were able to grow earnings on a year-on-year basis. As we mentioned last quarter, we expect an impact to our L&S business from the renewal of the marine contracts and equipment rate adjustments. Additionally, our G&P results also reflect some impacts from the severe winter weather, including higher energy costs and lower volumes. We continue to identify opportunities to structurally lower our costs and drive efficiencies in the business. And our reported operating expenses for the quarter continue to trend down. We're also maintaining strict capital discipline to efficiently execute our growth plans on a high return portfolio of investments. Our focus on strict capital discipline combined with growing EBITDA has allowed the business to generate excess cash after self-funding our distribution and capital program. We remain committed to prioritizing return of capital with over $900 million returned to unit holders this quarter through distributions and unit purchases. Furthermore, we believe our earnings growth, combined with the desire to hold debt flat will result in a reduction in leverage over time. As we look ahead through 2021, we expect to generate excess cash after capital investments and distributions as we had planned to do. The availability of the COVID-19 vaccine provides hope for the return of global transportation fuel demand and economic recovery. Even though many uncertainties still exist, the world's need for reliable, affordable, and responsibly produced energy remains important. We believe we can continue to meet this need through our strategies that will allow us to successfully adapt to the evolving energy landscape by shaping our asset portfolio to meet the challenges and opportunities created by the energy evolution. If you look at slide 4, I'd like to provide some comments on our commitment to ESG. Last quarter, we discussed the importance of setting objectives for the organization to drive continuous improvement on ESG. Our commitment to sustainability positions us to deliver strong results in this space, including lowering the carbon intensity of our operations and products, improving energy efficiency, and conserving natural resources while using innovative technology to do it. We've established a program to lower methane emissions at our natural gas gathering and processing business that includes a goal of reducing our methane emissions intensity to 50% below 2016 levels by the year 2025. A broader vision of sustainability emphasizes delivering essential energy products and services to the world in ways that create shared value for all our stakeholders. Now let me turn the call over to Pam to discuss our operational and financial results.

Pam Beall, CFO

Thanks, Mike. Slide 5 outlines the first quarter operational and financial highlights for our logistics and storage segments. Segment EBITDA increased $24 million year-over-year despite headwinds from a reduction in our marine transportation fees and lower throughput on some of our pipeline equity method investments. The team's focus on operating expense reductions and business efficiencies provided support for the segment. Additionally, all terminal throughputs were lower compared with the first quarter of 2020; pipeline volumes were in line with the same period last year. We continue to make good progress on our strategies to create an integrated crude oil and natural gas logistics system from the Permian to the Gulf Coast. The Wink to Webster crude oil pipeline, in which MPLX has an equity interest, continues to play segments in the service, and we expect this activity to continue throughout the remainder of the year. As segments are placed in service, we expect EBITDA contributions from this project to ramp up throughout 2022. Consistent with our focus on projects with minimal return risk, the pipeline system has 100% of its contractual capacity committed with long-term minimum volume commitments. On the Whistler natural gas pipeline, commissioning activities on certain segments are underway in preparation for the project to startup in the third quarter of this year. Similar to the Wink to Webster project, Whistler is backed by long-term minimum volume commitments and we expect EBITDA contributions to also ramp up through 2022. Finally, we continue to work towards an in-service date in the fourth quarter for the natural gas liquids takeaway solution, which provides long-haul NGL service from the Permian to Sweeny, Texas. The project will have an initial capacity of 125,000 barrels per day with the potential to expand up to 350,000 barrels per day. Before we leave the discussions on our L&S segment, I'd like to provide an update on certain contracts between MPC and MPLX. MPLX continues to work alongside MPC as it progresses its portfolio of renewable projects, including potential opportunities to expand our logistics capability to deliver renewable diesel feedstocks. Since renewing the marine contract with MPC in January, we continued to receive questions around contracts for pipelines that were dropped into the partnership in 2012 and are coming up for renewal. But we continue to emphasize many of the assets MPLX operates are fit for purpose for MPC’s business and are integral to the MPC refining system. Furthermore, we believe our crude and product pipeline contracts are at market rates. As in the past, we fully expect MPC to renew its contract with MPLX as they mature over time, and for our revenue from these contracts to continue to reflect the strong integrated nature of the underlying business. Now moving on to our gathering and processing business on Slide 6, we provide first quarter operational and financial highlights for this segment. For the first quarter of 2021, gathered volumes were lower than the same period last year across our footprint. Furthermore, process volumes were down in all regions except the Marcellus. In the Marcellus, process volumes increased 3% and fractionated volumes increased 7% relative to the first quarter of 2020. The overall operating statistics include the impacts of severe weather during the quarter in the southwest. We estimate an approximate $16 million impact to our business from the winter storms, with the majority of that impact reflected in our gathering and processing segment results. This impact included reduced volumes at some of our facilities as well as higher energy costs. Gathering and processing segment EBITDA increased $34 million from the first quarter of 2020. This was supported by higher natural gas liquids prices and lower operating expenses, helping offset the impact of lower volumes, as well as the costs incurred due to the severe weather. In line with previously announced efforts around portfolio optimizations, we did close on the sale of our heavily the plant in Corpus Christi, Texas in mid-February. In the Marcellus, we've begun commissioning activities for our Smithburg 1 processing facility, with a targeted in-service date in the third quarter. Now moving to our first quarter financial highlights on slide seven, total adjusted EBITDA was $1.4 billion and distributable cash flow was $1.1 billion. MPLX grew both EBITDA and distributable cash flow compared to the first quarter of 2020. Our distributable cash flow generation provided strong coverage of 1.5 times for the quarter. And we paid $754 million in distributions. Furthermore, MPLX continued to self-fund all capital investments and distributions to unitholders, with $277 million of excess cash remaining after these activities for the quarter. In addition, we returned $155 million to unitholders through the repurchase of over $6 million publicly traded common units under our unit repurchase program. As of March 31st, total repurchases of $180 million have been made since the program's inception which was launched in the fourth quarter of 2020. Even with the continued uncertainty facing the economic recovery, we were extremely disciplined in our expense and capital spend for the first quarter. This caution helped to drive the significant amount of excess free cash flow generated during the quarter. Looking forward, we've not changed our guidance on growth capital investment of $800 million for 2021. This implies a higher run-rate of capital spend for the remaining quarters. As we increase our growth capital project related work that tends to ramp-up through summer months, we also expect to see a meaningful increase in the projects that are expensed. Subject to many factors that influence the timing of project and maintenance spend, this amount could be sequentially higher by as much as $75 million in the second quarter relative to the first quarter spend. With our continued capital and expense discipline and growth in EBITDA, we expect to continue generating excess cash flow for 2021, providing financial flexibility to pursue value-creating opportunities for our unitholders, including unit repurchases. We intend to remain flexible with our unit repurchase program and expect the pace of unit repurchases to be informed by market conditions, the business environment, and the amount of excess cash generated in prior quarters, among other factors. On slide six, we provide a summary of key financial and balance sheet information. And I want to highlight that the inflection to generating excess cash and returning capital to unitholders has not compromised our focus on maintaining a strong balance sheet. We ended the quarter with a leverage ratio of 3.9 times, approximately $2.7 billion available under a $3.5 billion bank revolving credit facility, and $1.5 billion available on our intercompany facility with MPC. We intend to maintain our investment grade credit profile. And as Mike mentioned earlier, hold our debt flat; with strict capital discipline, growing EBITDA, and stable debt, we believe leverage will decline over time. So now let me turn the call back over to Kristina. Thanks.

Kristina Kazarian, Director of Investor Relations

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

Operator, Operator

Thank you. We will now begin the question-and-answer session. Our first question comes from Jeremy Tonet with JPMorgan. Your line is open. Please go ahead.

Unidentified Analyst, Analyst

Hey, good morning, guys. It's James on for Jeremy. Just want to start on the buybacks. It seems like the strong progress is made through the first quarter. I’m just wondering if you can share any color on the cadence for the rest of the year, or if there are any bogeys or what factors you look at to allocate capital to buybacks going forward?

Mike Hennigan, Chairman, President, and CEO

Good morning, James, this is Mike. On buybacks, the best guidance we can give you, I tried to say this a couple of times is, it's going to be a dynamic process for us, not a program that we just set and walk away from. So, we've tried to be transparent that we were driving excess free cash flow, we achieved that, and we've set back in the latter part of 2020 and into 2021. So the way we're going to look at it is each quarter as the market moves, and we have more intelligence about the market, the unit price, the outlook, etc. we're going to look at what's the best way to deploy that excess cash. Buybacks is, obviously, something that we prioritize in the recent terms, especially since we're trading at the yields that we're trading at. But we have all the levers available to us: buybacks, distributions, debt, capital, all of those avenues are available to us. And as a management team, we're going to continue to talk about things through the quarter, and continue to make what I call real-time decisions or a dynamic process that's trying to be receptive to the market conditions at the time and trying to provide the best unit-holder value. I hope that gives you a better feeling about how we're thinking about the process.

Unidentified Analyst, Analyst

No, it does, and I appreciate the color there. Maybe just for my follow-up, shifting over to the renewable side. You mentioned the renewable diesel opportunities in prepared remarks. Just wonder if you can elaborate on how far out on that if there's any capital allocated to that this year? And then maybe just a second part of the question, looking at carbon capture. If you foresee the 45Q tax credits as being sufficient to incentivize capital allocation there?

Mike Hennigan, Chairman, President, and CEO

Yeah, James, I'm now going to let Tim jump in with some more detail. But I'm just saying in general, we're obviously aware of the energy evolution that's occurring. There's a lot of opportunities that people are exploring, Tim and his team are looking at a lot of different things. So I'll let him give some color here.

Unidentified Representative, Representative

Well, Jeremy on the 45Q credits, I guess, it kind of depends. In general, the 45Q is the primary incentive for carbon capture and sequestration. And if you got the right environment, it may drive a competitive project. But if you look at most of those out there, it requires stacking of incentives. And sometimes variable costs depending on the capture, transportation, and sequester costs come into play. So if you have projects with low capture costs, and minimal transportation, and some favorable geology, well, then that might cover it. But other projects would require things like LCFS uplift for certain products in order to hurdle those higher costs. So again, it kind of depends. We do expect the government policies a little further define the regulatory framework, and it's possible that there could be additional incentives that come.

Unidentified Analyst, Analyst

Got it. That's very helpful. I'll stop there. Appreciate the questions.

Mike Hennigan, Chairman, President, and CEO

You're welcome.

Operator, Operator

Our next question comes from an analyst with UBS. Your line is open. Please go ahead.

Unidentified Analyst, Analyst

Good morning and thank you for taking my question. So I would like to follow-up on that question, on renewable investments. Could you maybe provide more color on the scope and potential returns from the investment that you are looking at? The renewable investments? Thank you.

Mike Hennigan, Chairman, President, and CEO

Yes. So we haven't guided to a detailed point of disclosures on the things that we're looking at. I think the takeaway that you should think about is there's a pretty myriad opportunity set in front of us now. Tim just mentioned, carbon capture is one thing that we're looking at. Pam mentioned renewable diesels obviously being advanced by MPC. Lowering the carbon intensity of products is going to continue to be a theme that plays itself out there. So, we haven't given any detailed disclosures, other than to say that we're cognizant of the environment that we're in. I like to say, people were talking a lot about hydrogen at one end of the spectrum. I think that's a little further out in time. But it is something that we're evaluating as we go forward. Now MPC is in the business of hydrogen. So that's something that we're very close to. At the same time, on the near-end, as Pam mentioned, renewable diesel is on the front-end. As Tim just mentioned, activities around there, are all front and center for us. However, we're going to make sure that when we advance the ball in there that we have a really strong return. So we are going to maintain capital discipline, not jump at something that just appears to be good. We're going to make sure that, at the end of the day, it gives us a good return and provides value to the unit holders.

Pam Beall, CFO

Hey, it's Pam. I wanted to add to Mike's comments. Another point to discuss is our strong belief in the pivotal role that natural gas will have during the energy transition. We're actively seeking opportunities to engage in the natural gas value chain downstream from our current operations. As Tim mentioned, there are some ongoing pipeline activities, and Tim, feel free to share more about the natural gas storage investment through our joint venture. We're exploring these opportunities because we believe natural gas will remain a crucial part of the energy solution for the foreseeable future.

Unidentified Analyst, Analyst

Thank you. And what has been the latest rich turnaround your puts in the northeast that crosses bowling towards down a little bit in 1Q versus 4Q. Do you expect the recovery throughout 2021?

Mike Hennigan, Chairman, President, and CEO

I’ll let Greg take that one.

Greg Floerke, Senior Vice President

It’s Greg Floerke. Regarding the outlook for the northeast, NGL prices and currently gas prices are encouraging further development in the region. Rich gas drilling is mainly concentrated in the Marcellus, while more of the dry or lean gas drilling is taking place in the Utica. We do experience seasonal fluctuations in volumes from quarter to quarter, especially during winter and due to maintenance schedules. However, overall, the Northeast remains a crucial basin for us. We believe that NGL prices, including the strip price and current inventory levels, support the potential for increased rich gas drilling in the area.

Unidentified Analyst, Analyst

Thank you and have a great day.

Mike Hennigan, Chairman, President, and CEO

You're welcome.

Operator, Operator

Our next question comes from John Mackay with Goldman Sachs. Your line is open. Please go ahead.

John Mackay, Analyst

Hey, good morning. Thanks for the time. Just wanted to circle up on the buyback, understand it's a variable number that will move around quarter to quarter, depending on how much cash you have or leftover. Just curious as to how Javelina proceeds were kind of rolled into that number over if you see the 150-ish you did this quarter as being kind of a healthy number of the base business can generate?

Pam Beall, CFO

Yeah, John thanks. This is Pam. I'll take that question. So, we talked about the fact that we actually generated $277 million of excess cash after funding the distributions in our capital program. That surplus cash did include proceeds from the Javelina sale. We did deploy $155 million of that into unit repurchases. But we also highlighted that, the first quarter, we were extremely conservative on all forms of cash that we spent, just given some of the economic uncertainty as we move through the beginning of 2021, not knowing how the pandemic would play out. So we do expect to see higher capital in subsequent quarters, and also some increase in expenses related to projects that we do that are expensed. And as I've highlighted, in some prior calls, some of our maintenance activities as well highlight API 653 tank work, we expense that work; other companies capitalize it. So as we move through the year and maintain our assets, we'll have some increase in costs related to those activities. So didn't want people to get so focused on the high amount of excess cash that we generated during the first quarter.

John Mackay, Analyst

Thanks. That's helpful. To follow up on what you mentioned, Pam, I believe you're referring to the $75 million of additional costs you mentioned earlier. It seems that this amount is not included in the overall CapEx budget. That's the right way to think about it.

Pam Beall, CFO

Yes, that's correct, John. Those will appear in our operating expenses.

John Mackay, Analyst

Okay, great. If I can squeeze in one more question, Utica has been weaker than we expected over the last couple of quarters. I'm curious if you can provide any specific insights into what's happening with those assets and whether anyone has been identified who could contribute there. Also, could you share any updates on your efforts to optimize that footprint, which you mentioned a bit in the last call?

Greg Floerke, Senior Vice President

This is Greg. With regard to Utica, as I mentioned, most of the focus there over the last few years has been on drilling the dry Utica areas. And we did see a quick ramp up in that. And we saw peak levels probably about a year ago. The rich Utica has been on a path where new drilling and new wells have not been sufficient to offset the normal decline of existing wells. So, we're hopeful that the Utica, the current NGL prices will actually encourage more drilling in the rich area of the Utica. But the larger impact that you've seen is where we see the largest swings is in the dry gas area—its largest volume—and if there's a timing issue on drilling, that shows up in a larger volume and larger percentage way. We're still bullish on Utica dry gas drilling. And, you're hopeful that we'll see. You continue to see good progress in terms of growth in the future there.

John Mackay, Analyst

Okay. Thank you for the time.

Mike Hennigan, Chairman, President, and CEO

You're welcome, John.

Operator, Operator

Thank you. We'll now go to Spiro Dounis of Credit Suisse. Your line is open. Please go ahead.

Spiro Dounis, Analyst

Hey, good morning, team. Mike, last quarter you framed 2021 EBITDA with one of your banks in the river analogies. I think you kind of put in a range of 4.9 billion to 5.3 billion, just annualizing some relevant 2020 quarters? I know you don't give official guidance, but I'm curious a few months in now, do you still feel like that's a relevant range and are you leaning heavily in a direction there?

Mike Hennigan, Chairman, President, and CEO

Yes, Spiro, it's Mike. So the main reason that we don't try to guide to that is, we don't have control over the volumes that come out of the system in general. We make our best guess at it. I think you're referencing last quarter, Pam gave a little bit of a bank of the river, and that is how we think about it. So, we're obviously happy when you know, we're seeing the markets the same way that the upstream side of the business does. But for our biggest challenges, we just don't control it. So I'll tell you, we keep a look at those things. We think about scenarios. And then we step back, and we concentrate on the things that we do control. So, we've had a lot of emphasis recently on cost reductions. And I think you're seeing that in our earnings year-on-year. At the same time, we're very cognizant of what are the scenarios that can play out for cash? And like, a couple of the questions that were asked earlier is, we're evaluating how the capital is going to play itself out through the year. As Pam said, we're still committed to that guidance, Tim and his team are evaluating whether there's economic support for us to enable some of the projects. At the same time, we're going to keep the discipline pretty high on that; if it stays high and we don't want to execute on those, we'll give that a little bit of time to percolate some more and then use the cash for the other levers that we have. So – so you're right, in that, we think about scenarios, and we think about what if everything goes our way? And then, we also think about: what if things don't go our way? I mean our goal, Spiro, is to try and be as transparent to the market as we can. We try and talk about not just the good things, but the risks that are out there. We've said we have two risks that, people are very aware of; example, and what's going to play out in that regard. Again, we don't control it, but we watch the court proceedings etcetera just like you guys do. And then the reality, just like everybody, those companies are doing the best they can on a quarter-to-quarter basis, just like we are. So I hope that gives you a little more flavors to how we're thinking about it. We don't control that exact up; that upstream number. We watch it. We trend. We talked to our customers, et cetera, et cetera. And then – and then the reality, just like everybody, those companies are doing the best they can on a quarter-to-quarter basis just like we are. Does that help you at all?

Spiro Dounis, Analyst

No. I guess, Mike appreciate the all the color there. So understood. Second one, just on renewables again, sorry, keeping an eye on this, but just curious how you're, you know, I know it's early days, but curious how you're going to approach capital allocation, I guess. And I think about the blueprint there, I guess what I'm wondering is to the extent you've got competing conventional projects versus renewable projects, and they more or less have the same return profile, does this tie go to the renewables? Are you looking at those projects through a different risk lens? And curious if this is an area where we could see you do more sort of JV opportunities with established players out there?

Mike Hennigan, Chairman, President, and CEO

Yeah, I think you hit it on the head; ties would go their way, we are conscious that over time renewables are going to be a bigger part of the energy landscape. So there's no doubt that we're conscious of that. The pace that that's going to occur and the economics behind how that occurs is still up in the air. Tim mentioned, once the specific project that people are spending a lot of time with, but there's many on the horizon right now. I would say that the list of things that we're looking at is pretty long, but already to execute today we're still evaluating some of these things. So, I think you hit it on the head though, as far as where would we invest, we want to try and put our capital into an area that is going to grow over time. We do believe that the energy evolution will continue to occur over time. Some of the areas I think are a little bit ahead of its time as far as the rhetoric. Some of the areas I think are very current. So, all those types of things, the way you described it, I think is exactly the way we think about it. And then, like I said, just what we were saying earlier, is even an individual project, we'll start to talk about some scenarios around it. You hit a really important point as well, what are the risks around it? And what's the term of it? And how much support do we have for? And how many customers? And what's the credit capabilities behind it? All those things come into play. So I like to think that our job is to have a very robust process and be very cognizant of capital that we could return to the unitholders if we chose to deploy it in a capital spending that we got to feel really confident that it's going to deliver a lot of value. So that's why if anything we're trying to leave you with, we raised the bar on capital discipline. We're trying to be as cognizant as we can of the market as it evolves. And at the same time, we're in a nice position to have some levers to deploy cash in a lot of different ways.

Spiro Dounis, Analyst

Great. That's all I have. Thanks Mike. Thanks, Pam.

Mike Hennigan, Chairman, President, and CEO

You're welcome, Spiro.

Operator, Operator

Our next question comes from Michael Blum with Wells Fargo. Please go ahead. Your line is open.

Michael Blum, Analyst

Thanks. Good morning everyone. Maybe just to stay on this topic a little longer, so just to understand it a little better. So you've got your sort of big three mission projects that you outline. Beyond those, it sounds like there's not going to be a whole lot necessarily in terms of larger size projects on the midstream side. And then on the renewable side, it's TBD, but it sounds like all being equal, those will take more time to develop. And so therefore, the CapEx should probably trend lower at least in the near term looking at 2022 and beyond. Just want to know if that's the right way to kind of think about it?

Mike Hennigan, Chairman, President, and CEO

Yes, Michael. You're on the right track, whether or not it proves to be the correct perspective is uncertain. We're describing the situation similarly to you: the team is evaluating numerous projects, possibly focusing more on those with lower capital requirements and higher returns, rather than the large-scale projects that attract more media attention. We're quite pleased with the significant projects we've completed. The team has a protective strategy for the higher capital projects, and the NGL project has been very beneficial for us. Tim and the team developed a solid lower capital solution for our customers, which has worked out well. Currently, we're assessing the projects that will yield the best returns, even if they require smaller amounts of capital. As Pam mentioned, we still believe that our capital guidance remains valid. As the year progresses, if we find that some things are taking longer, we might come in slightly under that guidance, which is consistent with what we said last quarter. We're aiming for transparency, but you've articulated the situation accurately. We're not against pursuing something larger if it materializes; however, in the short term, maintaining capital discipline, reducing costs, and increasing our earnings are our primary focuses.

Michael Blum, Analyst

Thanks. And then I know that another part of the plan has always been portfolio optimization, particularly on the GMP side of things. And I know that that market has been pretty slow in the last bit of time; wonder if there's any change that you're seeing?

Mike Hennigan, Chairman, President, and CEO

There hasn't been any change to date, Michael. But as you can see gas prices are now close to $3 on the benchmark. So things are looking up, Pam said it earlier. Probably one of the biggest things that we've debated with the sell side in the buy side for a while is our natural gas business. Pam mentioned it earlier, we think natural gas will be an important part of this energy evolution over time. We've kind of defended our natural gas position. When people have questions a lot of, why are we in this business, I think people are starting to see a little bit more of the stability that we talked about and some of the resiliency in our cash flows. So I hope people are seeing a little bit of what we've been thinking for a while. And then it's going to take a little bit of time. As mentioned earlier, and Greg commented on it, rigs are starting back a little bit more on the oil side, now that we're at $60 oil, so you're seeing rigs start to come back in that area. Natural gas will expect that to occur over time as well, albeit in a new dynamic, where producers are going to be a little bit more stringent about managing their cash flows. But I think in the long-term, we still like the position we're in and we like the business that we have. We're hoping the market has seen the resiliency that we've kind of talked about, and haven't had as much of a chance to display it. But the pandemic has given us that opportunity to show year-on-year earnings growth in 2020. And we continue to show that so. So hopefully that gives you a picture of what we're trying to do. In the meantime, I've tried to explain, quarter-to-quarter we can continue to evaluate the market, evaluate the projects, I think you said it well. We don't have a major one that we're ready to announce at this point, but we're looking at everything. So we spend a lot of time looking at the portfolio. Right at the moment, there's nothing on the front burner, as far as the question that people have been asking us about divestments. So we don't have anything on the front burner. And the main reason I say that is we'll like our assets; they're generating free cash. I'm a big believer in our assets have to generate free cash, and the assets that we think are challenged will put a little bit more attention there. But in the meantime, while they generate free cash, they're contributing to the partnership. So I think that's a big key; we're not forced to do anything. I use the term we're not giving any assets away. So if we got a value that we thought was appropriate to create value for the unit-holders, then we would execute on it. But we haven't seen that today. We've been very open about that. We've run a few processes. And at the end of the day, we have not seen things that we think would be of the value of us holding the assets ourselves. I hope that helps.

Michael Blum, Analyst

Yes. Thank you very much.

Mike Hennigan, Chairman, President, and CEO

You're welcome, Michael.

Operator, Operator

The last question comes from Keith Stanley with Wolfe Research. Your line is open. Please go ahead.

Keith Stanley, Analyst

Thanks. Good morning. I just want to first clarify the operating cost commentary again. So, was it a $75 million increase quarter-over-quarter in Q2? And that's kind of a good run rate from there or our costs just a little inflated in Q2, and then relatedly talking to release again, to being committed to lowering the cost structure? You've already done a lot. Should we read that as there's potential for another sort of meaningful round of cost reductions or is most of the low hanging fruit already done at this point?

Pam Beall, CFO

Yeah, Keith it's Pam, I'll take that. So, just to clarify that $75 million increase, that was a sequential increase from the first quarter to second, especially around some of the projects that we do that are expensed instead of capitalized. Now, we did make a meaningful reduction in the total costs, operating costs from 2019 to 2020, and those continue in 2021. In fact, we mentioned on one of our previous calls that some of our workforce reduction activities didn't take place until the fourth quarter. So, we had talked about $200 million commitment that we knew we could deliver on $200 million of operating cost reductions. And then we said the, the benefit of the lower workforce would be reflected in 2021. So, we're definitely seeing some of that, as you know, here in the first quarter, and we'll see that throughout 2021. And as you look at 2021 compared to 2020, our operating expenses will be lower. It's just that sequentially in because we had generated so much cash in the first quarter and our spending was so low. In fact, I haven't seen our capital investment this low on a quarterly basis since 2014, before we acquired the natural gas business. So I just didn't want people to think that it was going to remain every quarter that long. So, just trying to provide a little more color there. I hope that's helpful, Keith?

Keith Stanley, Analyst

It is. Regarding whether there will be further significant cost reductions, considering that you have already made substantial progress in that area?

Pam Beall, CFO

Yes, I would just say on the margin we're going to continue to focus on managing the business with as Mike likes to call it: it's our mantra, strict capital discipline and strict expense management.

Mike Hennigan, Chairman, President, and CEO

Yes, Keith, I'll add a bit to that. Your question reflects similar inquiries we often receive, and I like to use sports analogies like innings in baseball or quarters in football. In every game, we ask ourselves if there are areas where we can push ourselves further. We've clearly finished the first half, and we're evaluating other opportunities. As everyone knows, there are diminishing returns, so there’s only so much we can challenge ourselves. However, I hope we are always leaving the market with a solid game plan, continually asking ourselves that question because the market is always evolving. We shouldn't consider our cost structure settled; we will keep a close eye on it and continue to challenge it. Personally, I focus heavily on costs. While it's important to discuss revenues, it’s essential to remember that every dollar of revenue and every dollar of expense both count equally toward the bottom line. This remains a priority for me, and I hope it stays in focus for you as we track our progress.

Keith Stanley, Analyst

Great. That's helpful. Second question, just you guys have talked and you always do about growing EBITDA in the business. And then you also address just the 2012 pipeline assets and contracts pretty clearly. So when you look out over the next, I don't know, call it two, three years, what are the main levers you think that grow EBITDA of the company or are there any notable headwinds or things to be mindful of beyond the marine contract this year? That could be headwinds over the next call it, two to three years.

Mike Hennigan, Chairman, President, and CEO

Yeah, Keith, I guess one of the things that we hope the market likes about us is we try and be as transparent as we can, especially on headwinds. So, the two that we said, are very much out there that are material; it’s the dapple situation and it's a sort of high plains pipeline. To serve high plains, we thought was resolved, it's kind of gotten bounced back now again, so it's back out on the table. So those two issues are material in nature. So those are potential out there. Now, again, people ask us, what do we think is going to happen on? Again, we don't control that, we watch the court proceedings, etcetera just like you guys do. But those are out there. I think Pam was very transparent when we said, the marine contracts was going to be a significant change to us, roughly $100 million. And I think we gave everybody advance notice on that. So we will continue to be transparent on contracts. I liken it to very much to the questions we used to get on the G&P business all the time, people were really worried about that. On the contract side, we don't have anything on the horizon that we need to make people aware of. In fact, if anything we're trying to make the relationship between MPC and MPLX, more of a win-win over time. And the way that we can integrate and try and drive value for both entities is really the main goal. So if we see something that we think is an issue that we need to make aware of, then we'll certainly disclose that. And like I said, Pam, I think it's done a nice job of that in the past. And that'll continue to be our mantra. So we don't want to surprise the market with anything out the Apple goes. I think everybody's watching to see how that plays itself out as an example. And if there's something else that we think is a headwind, we're certainly going to make you aware of it.

Keith Stanley, Analyst

Thanks very much.

Mike Hennigan, Chairman, President, and CEO

You're welcome.

Kristina Kazarian, Director of Investor Relations

Perfect. Thank you. So, thank you everyone for joining us today. And thank you for your interest in MPLX. Should you have additional questions or would like clarification on any of the topics discussed this morning, members of our team will be available to take your calls. Have a great day.

Operator, Operator

That concludes today's conference. Thank you for participating. You may now disconnect.