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spk04: Welcome to the MPLX Second 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 a listen-only mode. Later, we will conduct a question and answer session. Press star 1 on your touchtone phone to enter the queue. Please note that this conference is being recorded. I will now turn the call over to Christina Kavarian. Christina, you may begin.
spk12: Thanks, Amber. Good morning and welcome to the MPLX second quarter 2021 earnings conference call. The slides that accompany this call may be found on our website at MPLX.com under the investor tab. Joining me today on the call are Mike Hennigan, chairman and CEO, Pam Beal, CFO, and other members of the executive team. We invite you to read the safe harbor statements and non-gap disclaimer on slide two. 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.
spk08: Thanks, Christina. Good morning, and thank you for joining our call. This morning, we announced that PAMBIO will be retiring after more than 25 years of service. Pam has played a critical role in many of our milestones and has been an excellent CFO as we transition the partnership into generating free cash flow after distributions and capital. Her financial guidance, strategic input, and solid counsel have been understated, and she will be missed. The Board of Directors and I wish her well in her much-deserved retirement. I would also like to congratulate John Quaid on his appointment. We look forward to continued strategic growth and value creation under his financial leadership. John will hit the ground running as he's been part of the Marathon team for many years and very deserving of this opportunity. With that, let me start by saying that earlier today we reported adjusted EBITDA for the second quarter of 2021 of $1.4 billion. Our operating results this quarter represented 12% increase in EBITDA from the second quarter of last year and a 10% increase in EBITDA from the second quarter of 2019. This performance highlights the resiliency of the business, irrespective of the challenging macroeconomic environment. Furthermore, the company generated excess cash flow beyond our capital and distribution requirements for the third consecutive quarter, enabling the continued return of capital to our unit holders through unit repurchases. In our L&S segment, throughput volumes continued to rebound with higher product demand and increased utilization at MPC's refineries. In our GMP segment, we continue to see high processing and fractionation utilization in the Marcellus. We are maintaining strict capital discipline and efficiently executing our growth plans on high return portfolio of investments. Both the Whistler Natural Gas Pipeline in the Permian and the Smithsburg One processing plant in the Marcellus began service in July. Looking forward to the remainder half of the year, we continue to expect completion of the Wink the Webster crew pipeline and the NGL takeaway system, which are both part of our integrated crude and natural gas logistics systems from the Permian to the U.S. Gulf Coast. In the GMP segment, the Preakness processing plant in the Delaware Basin remains on track to support anticipated incremental volume from producer customers in 2022. Our continued focus on identifying and efficiently executing high-return projects will support further growth for MPLX. As part of our work to advance low-carbon opportunities, we are actively engaged in evaluating new opportunities for the business, especially where we see technologies complementary with our expertise and asset footprint. The MTLX footprint spans a large portfolio of assets, creating a robust list of opportunities we continue to evaluate. We also continue to identify opportunities to structurally lower our costs and drive efficiencies in the business. When we look at our operating expenses, our 2020 controllable costs were more than $200 million lower compared to 2019. We continue to improve on this performance with controllable costs in 2021 expected to be incrementally $100 million lower than 2020 for a total of $300 million lower compared to end 2019. Our focus on strict capital discipline combined with growing EBITDA continues to enable the business to generate excess cash after self-funding our distribution and capital program. We remain committed to prioritizing the return of capital with nearly $900 million returned to unit holders this quarter through distributions and unit repurchases. As we look into the second half of 21, we expect to continue to generate excess cash after all capital investments and distributions. And as we've stated previously, We plan to execute repurchases based on free cash flow, the current, as well as anticipated needs of the business and the market environment. Finally, this quarter, we continue to enhance our ESG commitments and disclosures with the recent publication of both our annual sustainability and perspectives on climate related scenarios reports. Looking at slide four, I want to take a moment to discuss these reports in more detail. Our sustainability and climate report highlights that our approach to sustainability spans the environmental, social, and governance aspects of our business. Within this year's sustainability report, we've included a midstream specific supplement highlighting the specific topics and metrics that are most relevant and impactful to our industry. In our climate report, you will see we adjust our climate scenarios annually to maintain consistency with the latest IEA projections including the sustainable development scenario and the IEA's new net zero emissions by 2050 case. We continue to make progress on our target to reduce midstream methane emissions intensity 50% by 2025 from 2016 levels. Through 2020, we've achieved 44% of this target, a move that further enhances the low carbon profile of our growing natural gas business. In addition, we've achieved 45 percent of our target to reduce freshwater withdrawal intensity 20 percent by 2030 from 2016 levels. In short, we are challenging 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 Pam to discuss our operational and financial results for the quarter. Ms.
spk03: Yeah, thanks, Mike. Slide 5 outlines the second quarter operational and financial performance highlights for the logistics and storage segment. Our logistics and storage segment EBITDA increased $108 million for the second quarter year over year. Despite headwinds from decreases in marine transportation fees and decreases on certain equity method investments, the quarter benefited from increased pipeline and terminal throughputs. as well as the team's focus on operating expense reductions and business efficiencies. Our pipeline volumes returned to pre-pandemic levels and were higher than the second quarter of 2019. We continue to make good progress on our integrated crude oil and natural gas logistics systems from the Permian to the U.S. Gulf Coast. The Wink to Webster crude oil pipeline, in which MPLX has a 15% ownership interest, continues to place segments into service, and we expect this activity to continue throughout the remainder of the year. Consistent with our focus on projects with lower return risk, the pipeline system has 100% of its contractible capacity committed with long-term minimum volume commitments. On July 1st, the Whistler natural gas pipeline was placed into service, providing approximately 2 billion cubic feet per day of incremental natural gas transport capacity to the Texas Gulf Coast markets from the Permian Basin. Similar to the Wink to Webster project, the Whistler pipeline, in which we have a 38% ownership interest, is backed by long-term minimum volume commitments, and we expect volumes and EBITDA contributions to ramp up throughout 2022. And finally, we continue to work towards an in-service date in the fourth quarter this year for the NGL takeaway solution, which will provide long-haul NGL service from the Permian to Sweeney, Texas. On slide six, moving to our gathering and processing business, we provide second quarter operational and financial highlights for the segment. For the second quarter of 2021, gathering and processing EBITDA increased $39 million from the second quarter of 2020. Overall, gathered and processed volumes were lower than the same period last year. While in the Marcellus, processed volumes increased 2%. and fractionated volumes increased 3% relative to the second quarter of 2020. The impact of lower volumes was more than offset by higher NGL prices that were 41 cents per gallon higher than the second quarter of 2020. This segment also benefited from continued focus on lowering operating expenses. With inventories low and global demand driving exports of NGLs, we expect strong NGL prices could continue During the second quarter, we completed commissioning of the 200 million cubic feet per day Smithburg One processing plant in the Marcellus, and the facility was placed into service on July 1st. We continue to expect the Preakness processing plant in the Delaware Basin to be placed into service next year. Our outlook for the rest of 2021 remains cautiously optimistic with differing impacts across our footprint. For example, We experienced increased activity in the Bakken in the second quarter, which we expect to continue in the second half of the year. We also expect increased activity with volume growth in the Permian. In the Marcellus, our assets are highly utilized, and producers' drilling plans continue to focus on strengthening their balance sheets and prioritize generating free cash flow over volume growth. This allows us to generate free cash flow to be deployed in other basins and adds to our financial flexibility. Moving to our second quarter financial highlights on slide seven. Total adjusted EBITDA was $1.4 billion and distributable cash flow was $1.3 billion for the quarter. MPLX grew both EBITDA and distributable cash flow compared to the second quarter of 2020. The second quarter of 2021 results include non-cash impairment charges of approximately $42 million within our GMP segment related to minor changes in the portfolio. This is part of our ongoing evaluation and optimization of our assets in non-core basins. We will continue to evaluate opportunities to sell or joint venture such operations where there's a value creation opportunity. And while macro trends have improved for gathering and processing, Valuations for assets in non-core basins really have not been compelling. Our distributable cash flow generated provided strong distribution coverage of 1.73 times for the quarter, and we paid $729 million in distributions to preferred and common unit holders. During the second quarter, we returned an additional $155 million of capital through the repurchase of common units held by the public. This brings the total to 343 million since the unit repurchase program was launched in the fourth quarter of 2020. We now have 657 million remaining under our current board authorization for the repurchase of common units. Last quarter, we estimated an increase in expenses related to project work ramping up through the summer months of up to 75 million in each of the second and third quarters. While there are many factors that influence the timing of project and maintenance spend, we do still anticipate higher project expenses of approximately $75 million in both the third and fourth quarters compared to the first quarter. We remain committed to our strategic initiatives of lowering our cost structure. As I stated on the last call, we're confident we delivered $200 million of lower costs in 2020 compared to 2019. Those lower costs continue in 2021 and we expect our total controllable operating costs for 2021 will reflect an additional $100 million of reductions from 2020, increasing to approximately $300 million in total structural cost reductions made in the business since 2019. And lastly, as we look into the second half of the year, we still anticipate a higher run rate for capital spending compared to the first half of the year. But total growth capital spending is now expected to be at least $100 million lower than originally guided at $800 million for 2021. This is dependent on the timing of some of our core business capital spending, as well as some renewable and low-carbon investment opportunities we are evaluating. Slide 8 provides a summary of key financial and balance sheet information. We ended the quarter with a leverage ratio of 3.7 times. TODAY WE ALSO ANNOUNCED THE REDEMPTION OF THE ONE BILLION CALLABLE FLOATING RATE SENIOR NOTES DUE SEPTEMBER 2022. IT IS OUR INTENTION TO REFINANCE THESE NOTES SOMETIME IN THE FUTURE WITH TIMING DEPENDENT ON MARKET AND OTHER CONDITIONS. AND WITH OUR ONGOING FOCUS ON LOWERING OUR COSTS, OUR STRICT CAPITAL DISCIPLINE, WE EXPECT TO CONTINUE TO GENERATE EXCESS FREE CASH FLOW THAT WILL ENHANCE OUR FINANCIAL FLEXIBILITY, INCLUDING THE ABILITY TO RETURN INCREMENTAL CAPITAL TO OUR UNIT HOLDERS. And before I turn the call over to Christina for Q&A, I want to add a few comments about my retirement from Marathon, which I prefer to call the next chapter of my professional career, because those who know me know that retirement in the traditional sense does not fit me. Since 1978 when my career began, I've enjoyed a number of roles across multiple industries. However, my 26 years in energy with Marathon have been the most rewarding. We've all seen amazing results under Mike's leadership as CEO. And as a unit holder of MPLX and a shareholder of MPC, I look forward to seeing the results of Mike's vision for the company unfold. No doubt the company will remain a leader as the industry embraces an energy-diverse future. I know you'll all enjoy working with John Quaid, who will assume the MPLX Chief Financial Officer role effective September 1st. I will continue in an advisory capacity through November 30th this year to assist with the transition. And with that, I would also like to give my thanks to Christina and her team for the way they support our investors and our executives. And Christina, we can begin the Q&A.
spk12: Sounds great. Operator?
spk04: Thank you. We will now begin the question and answer session. If you have a question, please press star, then 1 on your touchtone phone. If you wish to be removed from the queue, please press star, then 2. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star then one on your touch-tone phone. Our first question comes from John McKay with Goldman Sachs. Your line is open. Please go ahead.
spk10: Hey, everyone. Good morning. Thanks for your time. And congrats to you, Pam, on your next chapter and John on the new role. Just wanted to start on the buyback. So it's better than we expected, but actually consumed a kind of lower share of retained cash flow than we'd expected kind of on a, you know, relative basis. Just curious if that represents any kind of shift in the capital allocation priorities for you guys, and I don't know whether it was a coincidence that it was the same dollar amount as the first quarter. Thanks.
spk08: Yeah, John, this is Mike. You probably shouldn't read much into it other than what we've said in the past, which is, you know, we're happy to be in an excess cash flow situation. Right now, you know, we still believe where we're trading that, you know, buybacks make a lot of sense to us. You know, at the same time, to your point about, you know, being a little bit lower than the retained cash is, you know, I mentioned this for a couple quarters. You know, we've had a couple things out there, some vulnerabilities that we wanted to make sure that we protect. DAPL was one that seems to have played itself out a little bit. Tesoro High Plains Pipeline was another. So keeping some dry powder was part of our goal here. So, again, it's a good position to be in. We have a lot of flexibility. I want to believe that we're going to continue to evaluate it constantly in real time. You know, I like to use the word dynamic. I know we ended up with about the same amount, you know, mainly because, you know, we kind of put a base plan together and then we have, you know, a little bit of excess dry powder that we'll decide as time goes by. So we're in a good position, you know, for us going forward. You know, we think all avenues are open to us. You know, debt reduction, additional buybacks, you know, distribution, anything along those lines is all open to us. with the main point being is that we're at a point of financial flexibility, you know, generating dry powder and having the ability to see what's the best, you know, value creation for our unit holders.
spk10: All right. That's helpful. Thanks. Maybe I'll ask one on the operating side. GMP a little bit weaker than we expected. Can we just talk a little bit more about the potential impact from the Sherwood and Mobley outages? And then also maybe more broadly about the Utica outlook overall, because that was a little weaker as well. Thank you.
spk08: Yeah, John, I'll let Greg take that one.
spk00: Hi, John. Greg Flurkey here. With regard to the Sherwood-Mobley outage, I believe that referring to the outage that we had on June 30th, we did have early afternoon on June 30th, we detected a minor release of product at our outage. just upstream of our Majorsville, West Virginia plant. And that turned out to be on the 20-inch Y-grade pipeline, which serves our Mobley and Sherwood facilities upstream. We did isolate that release to a leak around a valve on the 20-inch line. It took several days to de-inventory the line and reduce pressure and to make sure we had a safe environment to repair the leak. That repair was made and completed on July 3rd. So the period from about half of the day on the 30th through July 3rd was the impact period. Both of those upstream plants were shut down. The Majorsville plant itself was returned to service fairly quickly after we determined the site was safe. The impact we estimate of the repair and then the opportunity cost was approximately in the $6 million range. So, you know, probably a little bit more of that split over to falling over into the next quarter for a few days. So that really addresses, I think, the Sherwood-Mobley outage. More broadly regarding Utica, you know, we look at Utica and Marcellus as they're interconnected. We have an interconnected purity ethane pipeline as well as our fractionation and our C3 plus Y grade pipelines. And we have, you know, one time we were at high utilization in the Utica pipeline on our rich gas gathering and processing side. That's continued to decline over the past few years as the focus has shifted to more drier lean gas drilling in the Utica, but also continued focus on accelerated drilling in the Marcellus Ridge. And as you've seen, we've just had our third straight quarter of 90%, higher than 90% utilization in the Marcellus A little bit of that is at the expense of probably drilling and focus in the Utica rich. The Utica is a little bit deeper. Wells are a little bit expensive and more complex. We think long term, there still will be plenty of opportunity and, you know, for drilling in that area and the producers are still, you know, the economics are there. They're positive, particularly at current NGL prices. It's just really a matter of prioritization I think at this point. We also need to look at the fact that the Northeast overall is in really good balance. Not only are we high utilization, but the outgoing residue gas and NGL pipelines are nearly full, and any growth in the Utica would sort of offset growth in the Marcella, so it really is in a pretty good balance situation. But we think long term, we did see some decline also year over year in gathering, particularly in Utica, and part of that's driven by the dry gas area, which is still a strong area, that really is a matter of timing and some of the cash flow preservation and focus related to the COVID demand destruction and pricing last year. Even one quarter of delay in a drilling program results in one more quarter of decline. And as we know, all of these shale wells decline fairly rapidly and need to be replaced with maintenance drilling. So we look at that as a timing issue, which hopefully, and we think will recover.
spk10: That's really helpful. Thanks for your time.
spk04: Our next question comes from Jeremy Tonette with JP Morgan. Go ahead, please.
spk01: Hi, good morning.
spk08: Good morning, Jeremy.
spk01: I just wanted to kind of follow up, I guess, on the low-carbon opportunities that you mentioned in the slides and some of your commentary today. I was just wondering if we might be able to kind of peel back the onion a little bit as far as what specific initiatives there could be more kind of near-term in nature initiatives Just trying to think of what's real now versus later in your mind.
spk08: Jeremy, I'll let Tim give some color on that.
spk11: Good morning, Jeremy. This is Tim White. I think in addition to what Mike indicated in the opening there, we certainly are actively engaged in many new opportunities, and they may range from CCUS to RNG, CNG, LNG. Obviously, we're looking to support renewable diesel and SAF over the course of time. I think really when you look at our nationwide footprint, it really spans a large portfolio of assets. And I think this in turn does indeed create that robust list of opportunities that Mike mentioned. We certainly have a lot of flexibility. But at the same time, we believe this is a multi-decade energy evolution that's taking place. And I think it's important for us to take a longer-term strategic view We understand that many of the energy evolution projects may not yet be economical, but we believe over time these projects will be developed that evolve the energy space without sacrificing our returns. As you know, we're very capital disciplined here, and we're going to remain so. I think when you look at shorter term, certainly the renewable diesel support of the two refineries that- MPC has converted, you know, will provide opportunities. Our assets are well positioned to run these drop-in fuels. So I think that's the shorter term. I think the medium to longer term is probably going to revolve around things like carbon capture and sequestration. We're bullish on the fact that there'll be a CCS project at some point in the future along the Gulf Coast, given the emitters that exist down there. So I think maybe that addresses some of the longer-term stuff. So I'll leave it at that.
spk01: Got it. That's very helpful. Thanks. And Whistler coming online, good to see that entering service here. Just wondering if you could provide your thoughts as far as, you know, Permian-based investments. supply-demand takeaway on the natural gas side? I guess, you know, even with Mexico possibly taking a couple of Bs over the next couple of years, still seems like the possibility of a new gas pipe maybe being needed late 23 into 24 could be there. Just wondering what your thoughts are on the supply-demand balance for takeaway there.
spk11: Okay, I'll take that as well. Certainly the return of the energy commodity prices has certainly driven I would consider an improved outlook for the U.S. shale production. I think that's resulted in the fact that some of the existing capacity is starting to fill within the existing midstream space. But I think at the same time, we've witnessed many of our producer customers remaining very focused on capital discipline, especially over the past year, which I think suggests bringing additional production to the market really will require a thoughtful strategy around whether or not They're also willing to support and back additional long-haul pipes. I think at the end of the day, it's a balancing act for the producers and the midstreamers, and I think the market will dictate the outcome as it always does. But I think relative to the timing that you mentioned, I think there's a lot of industry chatter out there that suggests maybe in the 24-25 timeframe that takeaway capacity will once again be constrained.
spk01: Got it. That's helpful. And Pam, best of luck in retirement there. Thanks.
spk04: Yeah, thank you. Next, we'll go to Schneer Gashuni with UBS. Your line is open. Go ahead, please.
spk09: Hi, good morning, everyone. You know, first off, Pam, it's been a pleasure working with you all these years, and you will definitely be missed, but excited to hear that you're opening up a new chapter. Um, so please, uh, looking forward to you enjoying that and please stay in touch. Um, maybe just to, to pivot to a few questions here. Um, you know, with the, with your respondent product system over the last year and a half, uh, as we've worked through COVID, the NBC has kind of protected you on the downside, but there's also been, you know, I guess an uneven recovery just in terms of. you know, volumes coming back but not through the MVCs. Are we at the stage now where we're fully through the MVCs across your system and that as we see volumes get added, as we have a recovery, that we can see 100% of the volume translation into EBITDA from the stage going forward?
spk03: Yeah, Shanera, first of all, thanks for the kind comments. But, yeah, I would say that we are – we've returned – to pretty robust volumes, and they have somewhat correlated with Marathon's refining utilization. Now, the one thing that happens on the pipeline systems is that with the minimum volume commitments, there are some provisions that some of those volumes can be recaptured. So you'll see some changes quarter to quarter on deferred revenue. You know, as we recognize revenue, if there's a period of time when the minimum volume commitments cannot be – then we'll recognize it in the quarter. So there's some lumpy, sometimes lumpiness that you'll see, but you'll be able to see that kind of work through the system. But, yeah, overall, I would say that we're pretty much back to the pre-COVID levels. Now, refined products side has not been quite as robust returning as the crude side, and we've also seen a nice uptick in the terminals.
spk09: Okay, perfect. Definitely appreciate that. And then maybe, you know, as we sort of think about 22, you know, realize you've been at a stage of giving guidance, but you've been fairly active on your buyback program, which I think has been much appreciated by investors. Just kind of thinking about how you're thinking about it with respect to 22, you know, sort of toggling between how you're thinking about CapEx for 22. Are there any projects that you're, in a permitting stage that you haven't quite talked about yet that could FID that can sort of change that balance. Um, or, you know, as we sit here in August of 21, it's kind of getting late to FID something that would materially impact 22 catfacts. Just kind of wondering about your thoughts on that and what you're kind of noodling at this stage right now.
spk08: It's Mike. Uh, I'm going to answer that in a second, but let me make one other comment to what you just asked previously on pipeline volumes. One of the things that we are benefiting from at the moment that probably not sustainable long term is, you know, the virus is still a major impact in the system, and it's more outside the U.S. than it is inside the U.S. So export volumes, you know, in the marathon system were down as a result, and MPLX benefits from that as, you know, pipeline use inside the domestic system gets used more. So that'll probably change itself a little bit once we continue to battle through this pandemic. But that's just one comment that I wanted to give you on the pipelines on that. To your second question is, yeah, I mean, Tim said it pretty well to Jeremy's question. We have a bunch of projects that we're watching and looking at. You know, as everybody gets to know my DNA more is I'm really strict on capital. You know, I want to make sure that we get very, very high returns. So we're going to be, you know, I'll say cautious to deploy capital unless we really feel very comfortable, you know, with the projects. We have a bunch that we're watching. You know, Tim mentioned a couple in the, you know, alternative energy space. You know, we are going to evolve our portfolio as that evolves. But some of those projects today just, you know, they're not reaching a hurdle of return that we would like. So I think they'll get there over time. I think some of these things will play itself out over time. In the meantime, you know, we're going to stay cautious. And that's why, you know, as we set out for the year, we figured about $800 million of capital. You know, we've been trending lower than that. And Pam in her prepared remarks kind of said, hey, we're probably at least $100 under that. And, you know, I don't view that as a bad thing because, you know, if it delays into next year and the opportunity becomes more mature, we become more comfortable with the returns, then we'll deploy the capital. But, you know, as a general rule of snare, you know, I think the business is largely a return of capital business. You know, we're doing a large return of capital via distribution. We've added to that return of capital via buybacks. So that's an important part. At the same time, though, I am a big believer that, you know, you need return on capital as well. I mean, that continues to fund the growth. But we just want to do it in a very disciplined way. So we have stuff that we're thinking about. We haven't disclosed anything to your point. We haven't FID'd or disclosed anything because we're going to wait until it's really at a point that we think is a good return. And then that way we're checking off return on capital as strongly as we're checking off return of capital. Hope that helps.
spk09: No, it does. Really very much appreciate it. Thank you again for the update today. You're welcome.
spk04: Our next question comes from Spiro Dunas with Credit Suisse. Your line is open. Go ahead, please.
spk07: Hey, good morning, everybody. First question maybe over to you, Pam, just on the CapEx for the remainder of the year. Just curious, what's going to make up that capital spending in the back half? As you noted, kind of trending sort of lower than that $800 million. But I think even with that, still struggling to kind of build up to it with a lot of these projects entering service now. So just curious what comprises that buildup.
spk03: Yeah, well, certainly on the gathering and processing side of the business, we're going to see some, we would expect a little higher spend in the second half of the year. We have been very constrained across the entire system on our capital spending. And as we entered the first quarter, we were extremely strict. The second quarter, we had expect a little bit higher ramp up and really didn't see that materialize. I think it's just taking not only the producers, but our own teams a little bit longer, having put a lot of things on hold through 2020, seeing them start to ramp back up a little bit. But, you know, we have a variety of different projects that, as you know, we do have some that are coming into service. There might be a little delay in spending. But the other thing is we have some pipeline projects like some de-bottlenecking. Certainly in the Bakken and the Permian, we have some growth. Those are some of the core basins that we've talked about. Definitely in the second quarter, Bakken was up nicely in terms of operating projects. activities, the producers there have been putting more drilling to work. So pipeline and compression, well connects, certainly in the Bakken and the Permian are going to be part of that spend. And then just some de-bottlenecking and work that we have ongoing in some of our core assets in the logistics and storage side of the business.
spk07: Got it.
spk03: We also have some tank projects at Patoka. So it's kind of a, I can't say that, you know, there's one particular project or two that really stand out. They're very substantial. As you noted, we have completed some. And then just as we tried to highlight, given the nature of all the different opportunities that we're evaluating, you know, we could see one or two of these lower carbon projects come to fruition that could require a little bit of capital here in the third or fourth quarter.
spk07: Okay, that's helpful. And then, sorry, hopefully this doesn't count as my second question, but does that sort of skew the $100 million back up to $800 million, or is that contemplated already in that $100 million?
spk03: No, that's contemplated in the $100 million reduced number.
spk07: Okay, that makes sense. Thanks, Pam. The second one may be also for you, Pam. You mentioned that asset sales may be not the right time here for some of your underutilized or non-core assets. Valuations sound like they're not quite where you want them to be. So I'm curious, in terms of optimization efforts and joint ventures, which is something you guys are not new to, I'm curious what's being evaluated on that front to maybe uplift the value to you of those assets and if incentive rates at some point could make sense to sort of utilize those assets better.
spk03: Yeah, and so we do have a number of different discussions ongoing, but it's premature for us to put some daylight on that. And I don't know, Greg, if you want to discuss that a little bit more, but typically we don't talk about those kind of activities until we're complete with negotiations and ready to announce.
spk07: Understood. We'll leave it there. Pam and John, congrats again. Take care.
spk04: Thank you. Our next question comes from Keith Stanley with Book Research. Go ahead. Your line is open.
spk06: Hi, good morning. I just had some clarification questions on the operating expenses and volumes for the quarter. So, Pam, you noted Q3 and Q4, you expect OPEX to be, I think, $75 million higher than Q1. So was the second quarter operating expense then still very low and similar to Q1, and so basically just got pushed out to the second half of the year, or is that not the case?
spk03: Yeah, Keith, I will say, you know, there are What's driving this is when we do projects, a lot of it's capitalized, but there's also projects and related expenses that go along with that capital spend profile. So as I mentioned earlier, we probably thought we were going to spend more in the second quarter than what we did. And what tends to happen is that third and fourth quarter, just given some of the geography of where assets are located, sometimes it's more favorable to push that spending to the back half of the year Certainly third quarter is typically one of our highest spend CapEx quarters. And so it's really more about timing. Keith, we did see a little bit of an increase in that kind of expense from the first quarter to the second quarter, but not as much as we expected. And then we also saw the benefit of lower costs related to some of the headcount reductions that took place in the fourth quarter last year. And so that continues here into the first, into 2021. So that tended to mute some of the increases that we saw. Now, when you look at the different line items in costs for the partnership, you're definitely going to see some of the line items increasing related to variable operating costs and then certainly purchased product costs that are related to some of the contracts and gathering and processing where we have percent of proceeds contracts So you are going to see some operating expenses move around. But when we talk about reducing by $300 million our operating expenses, we're talking about those expenses over which we have control that don't flex with operating volumes, changes in operating volumes. Is that helpful, Keith?
spk06: That is. Thank you. And sorry to have sort of detailed questions here. I wanted to circle back as well on the pipeline volumes. So the commentary that you're back to pre-pandemic levels, when I look at Q2 pipeline volumes, you know, they're almost 10% above even second quarter of 19 pipeline volumes from before the pandemic. Is that correct? And is that what you were referring to, Mike, that some of the export dynamics with demand recovering better in the U.S. is actually causing some sort of outsized volumes versus pre-pandemic levels on the MPLX pipeline assets?
spk08: Yeah, Keith, that's exactly what I think is happening right now. So, I mean, we're still obviously in transition with the pandemic. And the good news for U.S. is, you know, we're in a better position than the rest of the globe. But, you know, over time, I think that'll even itself out. In the short term, that is benefiting MPLX to some extent as You know, we're getting to, you know, run our assets a little harder. MPC is keeping more, you know, volumes domestic as opposed to export. So, I think that is a little bit of a tailwind for us, you know, overall. Thank you. You're welcome.
spk04: Our next question comes from Christine Cho with Barclays. Your line is open. Go ahead.
spk02: Thank you. Pam, or someone on the team provided some color on the Utica outlook, but the Marcellus process volumes were down sequentially again. And is this just sort of a timing thing? Pam, I think you were the one who mentioned that there was some, like some of the teams had held work. But is there anything else driving this decline? Any sort of color on how we should think about the cadence through the year end would be helpful.
spk03: Yeah, I think Greg Forkey wants to take that one.
spk00: Yeah, Christine, I would say no, there's not, you know, we do have on quarter to quarter there's variation. Again, the wells, the producer volume, if they don't add wells in a certain steady cadence or even in one location or another, you're always having a decline until that gets made up and then you'll get a, you know, a new pad comes on and you'll get an increase in volume. So overall, I mean, you see our, if you look at our year-over-year processing volume, the Marcellus, we had growth. Depending on the quarters and weather events or other things that happen, we will have variation there. But we don't see any long-term issue. In fact, we're maintaining that 90-plus percent utilization and, you know, over 5, around 5.6 BCF a day or so that we're processing. So, This continues to be a strong area, and pricing is clearly favorable, both in terms of gas and NGLs. Marcus Hook differentials, some of our producers are reporting over seeing better than Bellevue pricing there. So, you know, a really good spot in the Marcellus, and don't see any issue there.
spk02: But I guess as we think about cadence through year-end, like should we think it kind of flattens out from here, or, you know – Are there going to be additional well pads connected that would bring it higher?
spk00: Yeah, I think, you know, again, it will depend quarter to quarter. We're at such a high utilization level on gas outflow and NGL pipeline capacity, as well as our own utilization, that there isn't a lot of headroom for growth. The good news is a lot of producers are drilling off of existing pads and using existing infrastructure and reporting out a maintenance type problem. drilling schedule, maybe some low growth, depending on the producer. But there really is not a lot of headroom there. So, you know, we would expect it to see maintenance level with maybe a little bit of moderate growth if prices stay good.
spk02: Okay, got it. And then moving over to the L&S side, would it make sense for MPLX to have a role in the Martinez conversion and participate on the logistics side? If so, how much capex could that translate to? In addition to the logistics, would you guys be willing to put any pretreatment or processing units in the MLP?
spk08: Christine, it's Mike. First off, on Martinez, the logistics assets are already in the MLP. There's not really capital required there, so that'll be part of that project. MPC is obviously doing the processing for RD, but MPLX will enjoy the logistics opportunity. So that's already in the base case. As far as your second question, yeah, we have optionality. That's the nice thing about our structure. As we move forward, like you said, whether it's pretreatment or something else, we'll have discussion about what's the best opportunity to create value for both MPC and or MPLX. Obviously, we like to do both at the same time. That's always been our goal. So as those come up, we'll debate that and then obviously come out with what we think is the best solution at the time. But it is definitely on the table to your question.
spk02: Great. Thank you.
spk08: You're welcome.
spk04: And our last question comes from Michael Bloom with Wells Fargo. Your line is open. Go ahead, please.
spk05: Thank you, Pam. I just wanted to add my congratulations and wish you the best of luck in your next chapter. Just a couple of questions. One, I mean, you guys are obviously one of the largest NGL marketers up in the Northeast. And my question is that the Mariner system looks like it's going to get fully up and running by the end of this year. And I'm just curious how to think about that as it relates to your business. Is there any puts and takes, either positive or negative, that will impact your ability to market your NGLs?
spk00: Michael, Greg Flurkey here again. You know, we have seen incremental Mariner East capacity come on over the past few years, and whether it's Mariner East 1, 2, or 2X, there's been incremental growth that we and our producer customers and others have taken advantage of. I think that in terms of – it's one piece that dictates how much capacity there is to go – that goes out – Obviously, NGL is one controlling factor, but also residue gas pipelines, as well as processing capacity. So we're operating in that high utilization range. And so it's really hard to say whether there's any overall uplift from additional Mariner capacity come online. Clearly, it's a good thing, because anytime you have pipes that are running at high capacity, adding additional capacity takes away potentially one bottleneck. But not... sort of a stepwise expectation because of the high utilization on all of the interconnected systems from our perspective.
spk05: Got it. Thanks for that. And my second question is on the NGL takeaway system, the JV with Whitewater and West Texas Gas. I guess the question is, is the $125,000 a day of capacity, is that fully contracted by the JV? And is there any cost associated with this So I just wanted to make sure I understand how to think about this.
spk11: So, Michael, this is Tim. I'll take that, and others can chime in. I think when you look at the capacity, that's the initial Phase I capacity of the system. You know, it's expected to start up in the fourth quarter of this year, and then, of course, it would ramp over the course of time. And so there are... You know, we have some commitments on the system, obviously, that back that. But I think the important part is that it is the initial phase. And as you recall, we scaled back the project significantly from its original scope in order to meet just the current demands. So this approach, I think, really allows the partners to leg into any capital-efficient solutions or expansions as the basin continues to recover. I think it's another example of our strict capital discipline approach. And, you know, so we're happy with our 25% ownership. As far as the CapEx, it'll continue to evolve over the course of time, but we don't give specific guidance on a project by project basis on the capital required. So hopefully that's helpful.
spk05: Great. Thank you so much.
spk11: Thanks, Michael.
spk12: All right. Well, Operator, if we have no further questions, we'd like to thank everyone for joining us today and thank you for your interest in MPOX. Should you have additional questions or would like clarification on any of the topics discussed today, please reach out and members of our team will be available to help. Have a great day.
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