Analyst Note| Stephen Ellis |
MPLX’s second-quarter results were quite good, and we are boosting our fair value estimate to $30 per unit while maintaining our narrow moat rating. MPLX’s pipeline volumes have come back from its COVID-19-induced declines rapidly, as pipeline throughput was nearly 30% higher than last year. Terminaling throughput was up 23% over the same time frame. Some of the improvement can be attributed to an overall recovery, as U.S. refinery utilization increased to about 88% from 73% year over year. However, Marathon Petroleum’s refinery utilization has exceeded that with 94% for the quarter, generating additional pull-through for MPLX’s services. The snapback is more linked to crude than refined products, with jet fuel demand still lagging. Further, lower export volumes within the Marathon system have contributed to higher domestic movements.
We also expect some upside now that the 2 billion cubic feet per day Whistler pipeline has entered service as of July 1. MPLX owns 38% of the pipe, which transports Permian gas to south Texas and is more than 90% contracted under minimum volume commitments. With dry gas production out of the Permian already 1.2 billion cubic feet higher than before the pandemic, and Mexican pipeline gas exports increasing, there’s solid demand for the pipe.
Capital allocation remains good. MPLX has bought more units than most midstream peers recently, with $155 million in new purchases during the quarter. Total buybacks back this year are $310 million. Similar levels of buybacks in the remaining half of the year would push unit repurchases to $620 million. Capital spending for 2021 is now expected to be around $700 million, $100 million lower than original guidance. The lower level of spending is freeing up more cash for capital returns, especially as leverage levels are already reasonable for MPLX.